A “ground rule” is a mental acronym. This is a heuristic. It’s not always true, but it’s usually true. It saves your time and brainpower. Rather than reinventing the wheel for every financial problem, personal finance rules allow you to apply past wisdom to find quick solutions.
Today I’m going to make my best impression of Buzzfeed and provide you with a list of 75 ground rules for personal finance. Some are effective tip packs while others are math shortcuts to save brain space. Bet you will learn a thing or two from this list quickly.
These basic rules of personal finance apply to everyone. They are simple and universal.
- The order of operations
- Insurance protects wealth. It doesn’t build wealth.
- Cash for both operational expenses and emergencies, nothing more. Saving too much money means losing value in the long run.
- Time is money. Wealth is a measure of how long your money can be bought.
- Set specific financial goals. Specific number, specific date.
- Monitor your credit rating. Accommodation at least once a year.
- Conversion of wages into salaries: 1 USD / hour = 2000 USD / year.
- Don’t mess with town hall. Don’t cheat on your taxes.
- You can buy anything. You can’t afford all of them.
- Money saved is money earned. If you look at the bottom line, saving a dollar has the same effect as making dollars. Saving and earning are equally important.
I like budgeting, but not everyone is as busy as me. However, if you are (or may not be) looking for a budget, these basic budgeting rules must be followed.
- You need a budget. The key to managing your financial life is to create a budget and stick to it. This is the first step in making a financial decision.
- 50-30-20 budgeting rules. After taxes, 50% of your money must meet your needs, 30% to meet your needs, and 20% to pay off debts or invest.
- Use the “sink tool” to save for a rainy day. They know it will rain eventually.
- Don’t confuse savings and checks. One saves, the other spends.
- Children cost about $ 10,000 per child per year. Family planning = financial planning.
- Spend less than you should receive. You can say “yes”. However, if you don’t measure your expenses (eg on a budget), are you sure you follow this rule?
Invest and Retire
In my opinion, the main “what you need to know” investment is for future financial success. The following basic rules will help you dip your fingers in this water.
- Don’t pick stocks. Instead, choose index funds. Very easy, very effective.
- People who invest full time are smarter than you. You can’t hit it.
- Rule of 72 (approved by doctors). The annual growth rate of the investment multiplied by the time of doubling is (approximately) 72. A 4% investment will double in 18 years (4 * 18 = 72). The 12% investment will double in 6 years (12 * 6 = 72).
- “Don’t do anything, just sit down.” -Jack Bogle how bad it is to worry about your investment and respond to the emotion.
- Bring matches to the employer. If your employer has a pension plan (e.g. 401,000, annuities) make sure you get as much free money as possible.
- Balance your investment before and after taxes. It’s hard to know what the tax rate will be when you retire. So if you balance your pre-tax and after-tax investments, your account will be balanced later too.
- Reducing costs. Investing in cost and expense ratios can cost you your profits. Keep these costs as low as possible.
- Don’t touch your retirement benefits. You may be tempted to dive into long-term savings for important current needs. But counter that desire. You will be thanked later.
- Realignments should be part of your investment plan. A portfolio that is starting to diversify can be the focus, with some assets performing well and others performing poorly. Rebalancing helps you calm diversification and reduce risk.
- The 4% pension rule. Save enough money for retirement so that your first year of spending is 4% (or less) of your entire hive.
- Save first for your retirement, the second for your child’s school. Retirees do not receive any scholarships.
- $ 1 invested in today’s stock = $ 10 for 30 years.
- Inflation is around 3% a year. If you want to be conservative, use 3.5% in your math.
- Shares earn 7% a year, adjusted for inflation.
- Are your age in bondage. Or have 120 minus your age in bonds. The heuristics, 30 year olds must have a wallet with 30% bonds, 40 years bonds with 40%, and so on. Recently, the “120 minus your age” rule has become more common. A 30 year old child must have a 10% bond, a 20% bond 40 year old, etc.
- Don’t invest in the unknown. Or, as Warren Buffett suggests, “Invest in what you know.”
Home and car
For many of you, home and car ownership add to your daily finances. The following basic rules for personal finance will be of great use to you.
- The sticker price on your home should be less than three times the total income of your family. Being “home poor” – or owning a house that is too expensive for your income – is one of the most common financial threats. Avoid it if you can.
- Faulty device? Replace it if 1) the device is over 8 years old or 2) it costs more than half the cost of repairing a new device.
- Used or new car? The price difference is no longer the same as it used to be. The options are the same.
- The total lifetime value of a car is approximately three times the price of a sticker. Choose wisely!
- The 20-4-10 rule for buying a vehicle. Enter 20% of the vehicle in cash with a loan for 4 years or less and a monthly payment that is less than 10% of your monthly income.
- Refinancing a mortgage makes sense once your interest rate drops 1% (or more) of your current interest rate.
- Don’t pay your mortgage up front (unless your other base is fully covered). Mortgage interest is deductible and current interest rates are low. While paying your mortgage up front can save you a bit of interest, it may be better to use it to earn some extra cash.
- Set aside 1% of the value of your home for future maintenance and repairs each year.
- The average car costs about 50 cents per mile over its lifetime.
- The interest payment on a depreciable asset (such as a car) loses twice.
- Your primary residence is not an investment. You don’t have to plan to live in your house forever and sell it for a profit. The logic didn’t work.
- Pay for the car in cash if you can. Paying car interest is a waste of time.
- When buying napkin tops, follow the 70% rule to choose a property worthy of.
- When buying rental property, the 1% rule is an easy way to judge whether you are getting positive cash flow.
Expenses and debts
Spend money (“What’s up?”). Then this personal finance rule applies to you.
- Pay off your credit card every month.
- I am indebted to use psychology to help yourself. Consider a debt snowball or debt avalanche.
- When buying, think about the cost of use.
- Make your expenses tangible with the “money diet”.
- Never pay the full price. Shop and do your research for the best deals. You can earn money by shopping online, win discounts with coupon codes or coupons for free shipping.
- The buying experience makes you happier than buying things.
- Shop by yourself. Peer pressure increases costs.
- Shop with a list and stick with it. These stores are designed to lure you into making an unexpected purchase.
- Spend on who you are, not what you want to be. I love to cook, but I can’t justify $ 1,000 worth of professional kitchen equipment.
- The bigger the purchase, the more time it will get. Organic versus regular peanut butter? Don’t take 10 minutes to think about it. $ 100,000 for a time share? Don’t pull the trigger when you are three daisies high.
- Use less than 30% of the credit available. The use of credit plays an important role in your credit score. Increasing your credit continuously will hurt your credit rating. Try to keep your usage low (preferably paying monthly).
- Unexpected wind? Use 5% or less for self-medication, but use the rest wisely (for example, invest in later).
- Try to keep your student loans below the annual salary in your area.
The mental side of personal finance
In the end, you are what you do. Psychology and behavior play an important role in personal finance. That’s why this code of conduct is so important.
- Think about taking breaks. Mortgage payments aren’t always an optimal use of the extra cash. But the serenity that comes with debt relief is immense.
- Accumulation of small habits that have a big impact. It feels like a baby step now, but take your time.
- Give your brain time. Humans can rule the animal kingdom, but that doesn’t mean we’re not impulsive. Give your brain time to think before making important financial decisions.
- The 30 day rule. Please wait 30 days before making a “Dollar” purchase. After waiting, if you still want it and can afford it, then buy it.
- Pay first. Collect money (in a savings or investment account) before you have a chance to spend it.
- Don’t fall into the double income trap as a family. If you can, try to maintain your lifestyle on a single income. If one partner loses his job, the family finances remain stable.
- Every dollar counts. The money can be exchanged. There are many ways to increase your source of income.
- Enjoy what you have before buying new things. Think about the performance curve.
- Negotiating your salary can be one of the most important financial steps you will take. Increasing your income is perhaps more important than anything else on this list.
- Direct deposit is the boost you need. If you don’t see your check, you are unlikely to issue it.
- Don’t let comparisons steal your excitement. Instead, use comparisons to help set goals. (Net value).
- Learn to win. Education has a five times greater effect on profitability than any other group in the population.
- If you don’t pay cash, you don’t pay on credit. Withdrawing a credit card is as easy as handing over a stack of money. Don’t let your brain fool you.
- Prepare a running bucket. Water flowing from below has the same consequences as water that goes up. We often overlook financial leaks (costs, for example) because they aren’t all that glamorous – but they shouldn’t be.
- Forget Jones. Use comparisons to motivate healthier habits, not useless expenses.
- Talk about money! I know you hate it sometimes (like politics or religion), but there is a lot you can learn from talking to your co-workers about money.