7 Rules to Great Personal Finances

We can all make it out of this recession, but we all must do our part to get out of it. George Clason wrote in the foreword of his book “The richest man in Babylon”: “Our prosperity as a nation depends upon the personal financial prosperity of each of us as individuals.”

It is easy to point the finger to everyone about the economy, but are we doing what needs to be done in our own yard? We hear expert telling us to save money for the future and others telling us to spend for the economy. Who is right? In my opinion, they both are. The problem is not that we save too much or spend too much. The problem is that we don’t save or spend at the right places.

Out of 100 people, only one will be rich at retirement, 4 will be financial free and the others will either be dead of struggling. We need to work on our financial IQ and increase those odds. 1 out of 5 people surviving without any financial stress at retirement is not good. Here are 7 rules to great personal finances:

1. Save 10% of what you earn and put it aside. And yes, I know that seems like a lot of money for some of us. But you learn to adapt to your new budget and live on the 90% that are left. It is scary to learn that a great portion of the population do not have savings, even less 10% of their income. You must pay yourself first, by putting aside for your future.

2. Control your expenses. We have all been programmed  these days with the luxuries of life. We see the newest technology or newest fashion and we must have it today. Credit is so easily accessible now that we buy our luxuries not thinking if we can afford to pay for them until it is too late. When it is too late, we come to a harder choice in life later, after depleting our savings from step 1, we decide which bills to pay this month. We end up having to only be able to pay the strict minimum of our debt load which make our luxury buys so much more expensive than they actually are. Until that one day an incident occurs and we can’t pay for it and must declare bankruptcy. We must control our expenses and never use the money from our 10% savings for luxury buys.

3. Make your savings multiply. It is not enough to put money aside. We must also make it work for us. We all work hard for this well earned cash. Why not make it work for us now. Keeping your savings in your checking account will get you nowhere, your money will actually lose value, and very fast I might add.

4. Protect your savings from loss. Make sure you invest your savings somewhere you have some control over or at least have some knowledge of. If you do not have any knowledge, seek the advice of a trust worthy professional in the field to give you advice on your investment. For example, a baker won’t go invest all his money in a garage if he has no knowledge of how a garage should be run. This will guarantee him sure failure in his investment. Be wise, by surrounding yourself with people who can help you with your investment.

5. Own your own home. I see lots of red flags going up now, especially in this recession where lots of people lost their homes. Start with a home you can afford, not something that will stretch your finances or take away from your savings of 10%. And it only a few years, you will see, as oppose to rent where payments go up every year, mortgage payments are set and locked in for longer periods. When your income grows higher and you don’t have to pay higher rent as you are accustomed to, you will feel a relief like never before. And with that extra income, you may want to invest a little more, pay off the mortgage faster.

6. Insure yourself a future income. Yes it is very possible for everyone to insure himself or herself a future income. This is where you make up the difference from what your savings cannot accomplish. Insuring yourself a passive income, which is money coming in your household when you no longer have to do the work for it. For example, starting a part time business that grows with time, investing in property that brings you income month after month for your future.

7. And last, but also in my opinion, the most important one. Increase your ability to learn. This is something anyone can do, whether they are broke or rich. Read, listen to experts on the subject of money, investment or anything you have an interest on. These don’t have to cost you a fortune, they can be found at your local library. If you want more in life than you presently have, you must increase your knowledge and associate yourself with people that will bring you up and not down in life. If you want proof of this, read the biography of any successful person on this planet and you will see. That truth remains for everyone.

We can’t rely on others, not even our secure jobs anymore for a better future, as we have seen big companies fall or transfer labor elsewhere.  We must take control of our finances and plan our future better than we have been.