When it comes to personal finance, your best course of action is to keep things as simple as possible. While these suggestions might sound cliche, or obvious, it’s shocking to see how many people disregard the need to do even the simplest things, such as building a budget. Of course, not everyone will be able to follow each rule all the time, but those who abide by these guidelines will improve their financial situation.
1. Spend less than you earn
This is the golden rule of personal finance. Your earnings must be greater than your expenses. If you’re looking to avoid debt and financial hardship, the formula for success is that simple. While that can be easier said than done, there are several things you can do to put yourself in the position to earn more than you spend. Here are a few…
Those who achieve some level of financial freedom don’t get there by putting their faith in a lucky miracle, such as winning the lottery.
2. Focus on building an emergency fund
If you don’t already have an emergency fund, this should be your top priority, starting now. Life is unpredictable. Especially if you have children. This article emphasizes the importance of planning, but certain things are out of your control; medical bills, expensive car/home repairs, unexpected lay-off. Should you be impacted by the financial burden of any of these unfortunate events, nothing is more helpful than an emergency fund you can tap to offset these costs.
3. Focus second on eliminating high-interest credit debt
If you don’t have the funds to pay off your balance at the end of every month, high interest credit cards are a recipe for disaster. Most store cards and standard credit cards — carry interest rates of 20% or greater. To make matters worse, far too many people dig themselves into unsecured debt and are only able to afford to make minimum payments. Paying off high-interest credit cards takes years if you’re only making minimum payments. By the time you’ve finally paid off the card, you will have paid by twice as much as what you originally borrowed.
The key to avoiding this situation… follow Rule #1!
4. Build a budget
I’ll say it again, everything comes back to Rule #1! Building a budget is the best way to ensure you are not spending more than you earn. The best place to start is by determining how much money you spent (on average) over the past 3-6 months. Some of the biggest line items in your budget; car, housing, food, utilities, entertainment, savings for your emergency fund (Rule #2).
If your’e spending more than you’re comfortable with, find areas where you can trim some fat. There’s a good chance that some of your spending is on things you “want” but don’t necessarily “need.”
5. Buy term life insurance to cover your dependents
Life insurance is only necessary if you have dependents. What are dependents? Dependents are people whose financial well being is directly tied to your income. Some examples are kids, a spouse and/or any of relatives who rely upon you financially. As covered above, certain unfortunate events in life are unexpected. Make sure you’re prepared in the event that you’re no longer on this Earth to provide for your loved ones.
6. Don’t (necessarily) save for your children’s college education
Let’s be clear, it’s never bad to save for college, but you should make other more urgent things a priority first. After all, there is a chance that your child can secure financial assistance in the form of a grant and/or scholarship. Parents are better off providing financial stability for their kids throughout their childhood.