Everyone, in my opinion, should have a set of “money rules” or financial principles by which they live.
Setting financial boundaries may help you manage your connection between spending and saving; these limits can eventually make your life better by identifying what (or who) deserves your hard-earned money.
It took me many hours of book reading to create these principles, and they are not one-size-fits-all. The essential term in “personal finance” is “personal”; you may have an entirely different set of financial constraints than I do, and that’s absolutely OK!
1. Never hesitate to spend money on education
The term “education” has become very contentious; when I use the term “education,” I am not referring simply to earning a college education.
Education may take many forms, and college is only one of them. I don’t consider college to be a total waste of time because I worked in my field of study for the first six years following graduation.
However, at this stage in my career, I’m much more interested in learning about creating a brand and diversifying my income outside of my job — and as a result, I’ve shifted away from spending money on a “conventional education” and have shifted to spending money on books, classes, and so on.
I noticed myself second-guessing spending money on learning new abilities in my early-to-mid twenties, but I didn’t bat an eye when purchasing a new pair of shoes or a piece of jewelry; looking back, that attitude makes no sense.
You are your best wealth-building instrument, and investing in a skill set that can 10x your income is never a waste — and for some individuals, attending college may be the key to obtaining a greater salary, which is totally acceptable as well!
In the pearls of wisdom of Warren Buffet, - “The most important investment you can make is in yourself.”
2. Choosing quality over quantity is always a good idea.
I’ve already discussed my dislike for all-things-fast fashion in my piece “The Most Insane Ways Americans Waste Money,” and for good reason: inexpensive clothes are a tremendous waste of money.
After throwing hundreds of dollars down the toilet at places like Forever 21, I vowed to avoid fast fashion after college.
Too many of us fall into the trap of buying inexpensive apparel, shoes, and so on, believing that we are knowledgeable shoppers who know how to get a good bargain – this is untrue.
We all know that Forever 21 isn’t exactly known for making excellent products that last a lifetime; most pieces of apparel only survive a few years before a button falls off or a thread comes free.
3. Marry a Person with similar financial habits
This is going to become very personal, but it’s a crucial topic to have since the person you marry may make or destroy your financial destiny.
Financial compatibility is essential, and picking a financially irresponsible partner might create more worry than it is worth.
I’m not exaggerating when I say that by the second or third date, you should have figured out your dates’ credit score. It may appear intrusive to ask these questions so early, but I’d prefer not to waste either his or her time.
4. Never sacrifice freedom in the pursuit of money
I work in technology, and I’d say my field has a reasonably decent work-life balance.
If you are comfortable with your job and you get a better offer with far less freedom for a modest amount of pay rise then stop and re-evaluate how much freedom you will be losing.
If I want to earn more money, I’ll go find another source of income other than my job - end of the story.
Furthermore, there is a tremendous scope today in being able to go out on your own and generate money irrespective of your day job.
5. Never pressure yourself to buy a home
There’s nothing wrong with purchasing a home, but I feel it’s overrated.
A primary house is only considered an investment on the halfway mark; on the one hand, you’ll always need a home to stay, and the future costs of not investing in the down payment should be factored in before completing the purchase.
On the other hand, if you are 62 years old and own your property outright or have 50% equity in it, your home can basically become an “investment” if you get a reverse mortgage, enabling you to use the equity while you are still alive.
The housing market in many cities has been in complete disarray over the last year, as a combination of low-interest rates, people moving out of high-cost-of-living cities to rural areas, rising lumber prices, fewer new construction permits, and other factors have caused home prices to skyrocket in many cities.
I’m not interested in overpaying for a home, and I’m not going to buy the first house that comes on the market in the city I want to live in simply to “secure a home.”
My advice to other house purchasers is straightforward: make a budget and stick to it. Because a house will most likely be your most expensive investment, it is critical that you do not make a hasty decision.
If a property in your price range isn’t on the market, wait it out; renting for another 6 months, a year, or so won’t kill you.
6. Always keep one year’s worth of expenses liquid
One of my biggest financial mistakes in my twenties was hoarding too much cash. I was constantly afraid that something horrible would happen and that I would need access to my money very now.
Many financial gurus advise saving 6–12 months of living costs, and I sleep better at night knowing that I have 12 months of expenditures saved.
Funds account interest rates are currently quite low, and although I don’t want to present this as a suggestion or endorsement, I do want to be honest and disclose that I have shifted a portion of my savings to BlockFi, a bitcoin bank.
7. Save and invest as early as possible
The earlier you begin saving, the more time you have to save cash to cover an emergency and meet your long-term spending objectives (again, think of a car or the down payment on a house). Furthermore, the earlier you start saving and investing, the more time your money has to grow. Start investing if you have spare money after saving for an emergency and other short-term savings objectives.
Compound interest is one of the most powerful financial powers because it permits money invested now to be worth much more later on. Money saved today is worth far more than money saved tomorrow — and this applies to both savings accounts and short- and long-term investments. Remember that a dollar today is far more valuable than a dollar tomorrow.
These seven money principles have given me peace of mind and clarity when it comes to handling my funds. I never lose time determining where to spend or save money since I established financial boundaries. What are some of your financial ground rules?