How you manage, spend, and invest your money can have a profound impact on your life. Learning financial discipline can take a while, but the basics are fairly simple and never change. Too many people make it all the way to adulthood without ever learning basic money management skills. Skills like creating a budget, investing for the future, or even how credit cards work are, startlingly, rare skills. Here’s where to get started:
Managing your finances feels like nothing but a lot of paperwork and numbers. You make X amount of money, you spend Y amount, and you try to make sure Y is less than X. However, your finances are basically about psychology, habits, and the values you choose to live by. Put another way, your mindset matters just as much as the math. There are a few rules that will help improve your financial life:
1. Spend less money than you earn:
If you earn 100,000/year and you spend 110,000/year, you will end up in a spiral of debt that’s hard to walk away from. If you spend exactly as much as you earn every year, you will never be prepared for emergencies or major life changes. Spending less than you earn means you save, to prepare for the future, and deal with the inevitable crises that life throws at you. The bigger the gap between your income and your spending, the better.
2. Always plan for the future:
This doesn’t just mean retirement. When a store offers to let you pay off some gadget in 6 months with no interest, you need to know that you can pay it off, or avoid that deal. Establishing an emergency fund will allow you to deal with unexpected car repairs or medical bills. Having a retirement plan will ensure you have income when you’re unable to work anymore. Your finances should always look forward beyond the current month.
3. Make your money make more money:
Want to know how the rich keep getting richer? It’s because money can grow while you sleep, provided you invest some of it. Properly invested money earns more money over time. Don’t just sock all your cash away in a low-interest savings account. Invest in things that will earn you more money than you had before. Sometimes that’s an investment account, but sometimes it’s starting a business, or even getting an education to get a better paying job.
4. The most important personal finance rules don’t change:
What your grandparents did may not work for you. There will always be newer, better tools to manage your money. However, spending less than you earn will always be beneficial. Investing your money will always be better than doing nothing with it. And planning for the future will always be better than blowing your paycheck as soon as you get it.