Personal finance is a term that covers managing your money as well as saving and investing. It is all about meeting certain financial goals whether having enough emergency fund, buying a new car or retirement savings. To effectively manage your income no matter how little, you need to become financially literate as it helps you to make smart financial decisions.
Your financial decisions and activities are two important factors to consider when it comes to your financial health. To help you make those smart financial decisions, we will be discussing five personal financial rules in this article.
- Consider Your Net Worth and Personal Budgets
The only understanding most people out about personal finance is inflow and outflow of cash. But in the real sense, there is more to this sector of finance. Taking time to do some calculation on your net worth can make the difference. Your net worth in simple terms is the difference between what you own and what you owe. Calculating your assets and liabilities regularly does not only helps you measure your success, but also helps you to identify areas that need improvement.
2. Identify and Manage Lifestyle Inflation
It is normal for people to want to spend more money when they start to make more money. This phenomenon is known as “Lifestyle Inflation” and it is very harmful to your financial health. Asides from the fact that it limits your capacity to build wealth, it also increases your debt.
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3. Know Your Needs And Wants
This is one of the best hacks to a healthy financial life. The ability to differentiate between your needs and wants helps you make better spending choices. Needs are things you must have to survive – food, shelter, healthcare while in contrast, wants are not required for survival. To get this part right your needs should be listed first in your budget, that way they get top priority.
4. Save Early
I’ve seen people work in public offices and only nurse the idea of saving when they are just 5 years away from their retirement age. Although it is said it is never too late to start saving but the truth is the earlier you start, the better it is for you. If you need to achieve long-term financial goals, then the best thing is to start saving now.
5. Build an Emergency Fund
The importance of an emergency fund cannot be overemphasized just as the name implies. It is set aside majorly for emergency expenses. In the case of a job loss, or a pandemic just like the world is going through now, an emergency fund can help you cover your regular expenses.
- Most people don’t like to hear about personal finance. They see it as a very difficult term and this fear causes bad decision and wrong outcomes.
- Spend time on your budget monthly – review, plan and revise regularly.
- Keeping a considerable amount of funds away in case of emergencies is one of the pillars of a healthy financial life.
Apart from these five financial rules, there are a lot more that can help you achieve financial success. In all your do, it is important to focus on the future and start building those habits that help you make smart financial decisions, leading to a better financial life