≡ Menu

5 Cardinal Rules Of Personal Finance

Let’s be honest, if there is one sure thing that we were not properly taught of in school, it is the ability to properly manage our personal finance.

Another sad thing is, most of us does not bother ourselves enough to be more educated in handling our finances. And this is why we may remain financially illiterate no matter how successful we are in our chosen career.

Successful and wealthy individuals often say that managing finances is a matter of self-discipline just like controlling our personal expenditures to save a portion of our hard-earned money. Self-discipline is a virtue that isn’t something inheritable, but it can be learned if we are willing to sacrifice a bit to acquire it.

Once we resolved to ourselves to be disciplined in our finances, then we should start adhering to the cardinal rules of personal finance. Financial experts, in their wisdom and financial literacy, agree to these 5 key rules to achieve financial freedom and wealth.

Do not spend more than what we earn

This basic sound so simple, yet it is the hardest. A lot of us are guilty on this, and it is evident especially during payday when we become one-day millionaires, and broke the next day. It happens because we justifiably satisfy our wants and needs as a reward for our hard work. Consequently, we often overspend and forget about saving a portion of our salary.

The simplest way to remember this rule of spending within our means is to properly define our ‘needs’ and ‘wants’ based on economics. So, wants are simply the things that are not needed for survival like gadgets and car, while a need refers to the things we need for survival like water, food, and shelter.

Maintain an emergency fund

Since we do not have a hold on our future it is very important to set aside a certain amount of money for emergency purposes. This dedicated fund can be used for possible contingencies like payment for our hospital bills and medications.

Refrain from incurring debts

It is hard for us to save money if we have outstanding debts to pay. The only way to get out of debt is by paying the principal amount first and the interest due. Once we get out of it, we should refrain from incurring debts and stick with our available cash on hand.

Invest

After saving a fraction of our salary, we should then start investing. We can try to put it in a mutual fund, stocks or invest it in securities where it can earn dividends aside from the possible increase of the value of your investment. When we invest, our money works for us instead of us working for it, provided we invested it on a legitimate instrument and learn also the art of properly investing. 

 Retirement fund

For most of us, in preparation for our compulsory retirement upon reaching a certain age, it is advisable to allocate a portion of our salary on a retirement fund. Not only does this fund serve as a security for us to still have money when we’re no longer working, we can also use it to pursue our passion, travel, or start a new business.