Consumer Comeback Blog

10 golden rules for personal finances

Just about every personal finance adviser/writer/blogger has their own “golden rules” or “rules of thumb” that they preach and live by in manners of personal finances. Just do a quick Google search. You’ll find tons of articles on the subject, and each one has it’s own unique set of rules. But in doing some research, we found that some rules that are ubiquitous. Concepts so widely accepted as important that you hear them repeated over and over again.  So that’s how we compiled our list: 10 golden rules of personal finances with links crediting our favorite sources.

I. Have a plan

Even if your plan is to live paycheck to paycheck for the rest of your life, at least it’s a plan. But for most people, we plan to retire some day. So the more forethought you give to those plans, the more likely they are going to become a reality. Probably sooner too. If you haven’t already, or it’s been a while, sit down and consider your goals and current financial situation. Then figure out what you’re doing to achieve your goals and if/how you can be doing more. And if you’re married or a part of a family, have the conversation early, and have it often.

II. Consolidate your finances

This tip comes from but doesn’t just go for couples. Individuals (as well) should do as much as possible to consolidate their finances so they can be better managed. The more accessible your financial information is to you, the better decisions you will make. You’ll have a clear understanding of what you can afford and what you can’t, but more importantly, the closer you manage your finances, the less likely you are to make impulse purchases.

III. Control your income

Too many people out there rely on a single job to receive their only income. These people don’t understand the vulnerability that they’re in with regards to their financial stability. A sudden loss of their job could be catastrophic. Taking control of your income doesn’t mean you need a second job or that every family must start a small business. It simply means being on the lookout opportunities to earn additional steady incomes. It means not taking your salary for granted. This cannot be stressed enough.

IV. Know the difference between needs and wants

This is the first step to controlling your spending. When you’re setting a budget for spending, make sure to separate the two. But be honest. Do you really need 2 cars? Bread is a need, ice cream is a want. You get the picture. It’s not to say you can’t set a budget for wants. The point is knowing which is which so you can be fully in control of that spending.

V. Know the difference between assets and liabilities, acquire assets

This is the second step to controlling spending, and something people rarely think about. puts it like this:

The majority of people go through life without truly understanding the difference between assets and liabilities. In my world, assets make you money. Liabilities cost you money.

The use of “liabilities” here is not technically accurate, but the point is simple: Think of your purchases (especially the big ones) as an investment. Instead of just considering the cost of the item, consider it’s value over time as well. Ask yourself: will this purchase will cost me money or make me money? Make more purchases of the former.

VI. Save at least 10% of your income

This is a general rule of thumb that you see all the time. And whether or not you can do 10% will vary on your individual situation. Our advice is this: Always Be Saving. If you can’t do 10% now, make sure you do some, and make up for it later. If you aren’t saving money you’ll find retirement a very difficult goal to reach.

VII. Pay down debt

This advice really goes along with the last rule (savings) and the two can even be interchanged (investing vs. paying down debt) depending on a number of factors like interest rates. The idea here is that as long as you’re able to save some money, you should also be focusing on paying down debt (beyond the minimum payment). Focus first on the higher interest rates rather than smallest debt (as some of these lists suggest). This will make your money stretch the farthest.

VIII. Make money from money

Saving money isn’t enough. You have to make that money work for you. It’s OK to have a savings account to set some money aside for a rainy day, but the interest isn’t enough to consider that a worthwhile investment. Make sure you’re taking full advantage of IRA and 401k options (for tax advantages) and then continue to further expand your investment portfolio as much as you can. This is how you will retire: by making your money do the work.

IX. Insure your assets

Insurance is an important part of your personal finances and shouldn’t be neglected. First, you absolutely MUST have health insurance. Soon it will be required by law in the U.S. but it’s a serious gamble to go without it. Next, protect the rest of your assets (starting with your most important ones) and make sure you’re covered in a way that won’t financially cripple you in the worst case scenario. Finally, if you’re a major provider for your family, get life insurance so they’ll be taken care of if something happens to you. Just remember, insurance is like reverse gambling, only those who don’t participate can lose.

X. Make a will

Last on our list, but certainly not last in importance (nor should it be the last thing you do). A will is the best way to make sure your assets are protected and distributed in the manner according to your wishes. When building wealth, it needs to be a vital part of ensuring this is the case. Visit an attorney and compose a will if you have any assets and haven’t already. You just never know.