Why You Should Always Keep These Money Rules

Are you someone who values money and the importance of financial freedom?

Naturally, you’re answer would be “yes” if you’re in the midst of experiencing that kind of success as far as saving, spending properly and budgeting your life from one purchase to the next.

Nothing is quite as liberating as financial flexibility in terms of not only feeling as though you’re secure but your future, financially speaking, is bright, and you’re on the right track to do anything from pad your savings account or emergency fund or retire in a timely fashion (without the fear of going back to work in the midst of your Golden Years).

Becoming financially responsible and ultimately smarter when it comes to saving and how you handle money in general is not accidental. Working, generating income, paying your bills and putting money aside isn’t something you just fall backward into, but rather is like having a job.

But before you believe wholeheartedly that you’re saddled with more work, consider the reward that comes from being financially independent: not having to worry about money and always thinking of ways you can grow your portfolio.

These money rules of sorts are followed to the tee by those who have developed these skills over time, and adhere to them, even though as you’ll see they aren’t difficult.

Sadly, this doesn’t apply to the masses when you consider the numbers and how much the average person has saved.

The average American (roughly 62 percent) has about $1,000 to their name that sits in their savings account, a far cry from the aforementioned financial freedom. Perhaps even more disheartening is that 21 percent of that same poll doesn’t have a savings account whatsoever. ^[1]

A brighter spot in this discussion teeters on the average amount of money a person has in their checking account, average sitting around $5,500, a number that is encouraging but also begs a question as to why that money is waiting to be spent in that type of account, versus being put somewhere more beneficial, i.e. retirement, 401K, IRA or savings.^[2]

Even that $5,000 benchmark isn’t going to be enough for any sort of financial emergency and when coupled with what you have in your savings just seems minimal at best.

Finding a balance on how you should treat money isn’t easy, but the good news is starting is, because there are specific, iron-clad money rules you should be following, no matter if you have $0 to your name.

These “rules” aren’t meant to be broken but rather embraced as a means to start saving and become more financially well off than your current situation.

Rule 1: Financial Future is about Living in the Now and Then

How much do you have saved for your retirement? An honest question that the majority of people duck at every moment, unless of course you’re someone who can say they’ve thought of and planned accordingly for that day when you’re no longer working, having a steady income but are more than comfortably living off what you’ve saved.

If the thought of that scares you, you’re undoubtedly someone who is uninterested in truly answering that question at this very moment.

A money rule that is non-negotihtble is planning for the future, and those who are good with money do this as a rite of passage.

They contribute as much as possible to their 401K on a pre tax basis through work, and also look for other means to put money aside into other retirement-based accounts.

If you’re someone who has saved for retirement and you’re between the ages of 44-49, you have about somewhere in the neighborhood of $80,000 saved, if you’re part of the average.^[3]

That said, that age bracket, from a median standpoint, can be as low as $6,000, a relatively low number even if you have 20 years left of work ahead of you.

If you’re lagging on this leading money indicator, you shouldn’t worry. You were permitted to contribute $18,000 per year to your 401K, and you can add another $6,000 to that if you’re over the age of 50 as of 2017, so playing catch up is easier than you might think.^[4]

The amount you can contribute to your 401K is expected to rise in 2018, so that bodes well for those who aren’t where they’d ultimately like to be.

Sadly, some haven’t thought much about retirement at all, and that mindset needs to change drastically with not only “playing catch up” by looking at other means to start saving, even if that means cutting back on your current expenses in a more drastic way than you originally thought was needed.

Rule 2: Saving Begins and Ends with Budgeting

Do you really, truly have a budget that you follow?

If not, you’re not only struggling with saving money from one day to another but you haven’t even thought about what it would be like to retire, a dream that might never come to fruition or be anything close to reality.

As previously mentioned, if you’re behind on saving for retirement, you have to look at ways you can contribute more.

If you’re someone who is uttering the words “I don’t have any extra money to give” that means your budget is officially broken. No one should be living paycheck to paycheck, and those who follow money rules that matter most will tell you they don’t do that, not for one minute.

That doesn’t mean’t the paycheck to paycheck lifestyle isn’t all too common.

Roughly 41 percent of men and 56 percent of women say they’re not doing well financially and between both genders 61 percent say they don’t have enough money saved for six months, should an emergency arise.^[5]

Given how much the average person has saved or floating around in their checking account, those statistics, while sobering, aren’t a shock.

Most who feel as though financially they’re between the proverbial rock and hard place don’t budget, plain and simple.

Having a budget does make a different but only if it’s two things: realistic and followed. A realistic budget has to be one that accounts for bills, expenses, but also wants. You need to have money available to do things like go to the movies or buy a new shirt sporadically or you won’t stick to it.

Sticking to it also means that once the budget is created you actually follow it.

Only about one-third of the population follows a budget that would be described as “detailed,” leaving two-thirds not doing anything to really track expenses and subsequent saving.^[6]

The budget really is the glue that gives you hope that not only you’re spending properly but having something to show for it that is right there in black and white.

Rule 3: Your Credit and Score Still Mean Something

Checking your credit and being on top of your score has become incredibly more visible in recent years, thanks to Credit Karma and other sites of that ilk that allow you to check your score without doing damage to it and in a farcical and amusing way show that you can improve your score but also in a tongue-in-cheek way show that having a good score allows you to buy a home, car and other things you’ll want and need.

Are you someone who values their score? Most likely.

Do you check it? Maybe.

Are you someone who works to improve it? That’s the question ultimately that separates those who follow money rules and those who don’t. Checking and valuing your credit score ultimately doesn’t mean you’re trying to raise it.

The average credit score is 687, which is considered “good” by most standards.^[7]

Again, this isn’t about the status quo but rather raising the score by doing what you can, changing what you can control and putting that score at a level that you’re not only managing debt to income but also limiting credit care usage and how much total debt you have.

What’s the easiest way to raise your score?

Make sure you pay your bills on time. Approximately 35 percent of your credit score is comprised of payment history.^[8]

If nothing else, make the minimum payment and make sure you don’t miss any payments, no matter what. Those who follow money rules and abide by them consistently will tell you that skipping payments is not an option, even if that means they cut the cable for a month or two, drop down a cell phone plan or start taking walks in lieu of paying gym membership fees.

Other ways to increase scores quickly include, if you have debt, is asking for your credit limits to be raised, thus helping that debt to credit ratio.

Rule 4: You Avoid Debt or Work Diligently to Get Rid of It

Your credit score is important. Saving money is, too, and having a budget all ties together nicely.

One facet of improving your financial standing also is ridding yourself of debt and not going into debt at all, if you can avoid it altogether.

When you talk about debt in a negative way, inevitably the discussion comes back to credit cards and other unsecured debt.

The average household has just under $16,000 in credit card debt, and debt overall is up eight percent in 2017 versus the previous year.^[9]

That obviously isn’t a good sign overall, but that doesn’t mean you don’t have exceptions to that unruly rule. Those who follow money rules avoid debt, don’t use credit cards and if they do have debt, they either pay it off from one month to the next or they have a plan in place to get rid of it in expert fashion.

A little less than half (42 percent) of households pay off their debt from one month to the next, a positive step in the right direction, financially speaking.^[10]

If you’re someone who believes debt is necessary, you’re not wrong as long as you’re talking about education, your home and other things you’d label “needs.” That doesn’t include vacations, shopping sprees or adding debt by buying what you can’t afford, such as impulse buys: hot tubs, swimming pools, etc.

The truth is most debt happens as a result of not having that emergency fund that is so coveted. You can see how budgeting, having money left over, establishing a savings account all lead to not having to go into debt in the first place.

As much as it is easy to say debt comes from extravagant purchases, you could argue that it is more about car repairs, braces for the kids, medical bills, deductibles, appliances on the fritz, etc. that cause debt, and you don’t have a choice because there’s no free-flowing cash anywhere.

Debt is a product of poor planning and budgeting, and steering clear of it is all part of money rules that work hand in hand with one another.

If you’re someone who still believes that your money will continue to “grow on trees” and you’re intent on living paycheck to paycheck, you might want to truly consider the alternative to that process of fretting and feeling pinched financially from one month to the next.

Who wants to really live like that, not being able to pay a bill when it first arrives in the mail or always being followed around by a cloud of financial uncertainty?

This is not a call to action to never spend a time or take a vacation, buy a shirt or become the most frugal of people overnight.

Rather, this is the culmination of being smart, enjoying spending in moderation and finding that happy place as far as organization and knowing where your money is, what it’s doing and how to maximize it.

Earlier, the question was posed as to whether or not you value money.

Everyone values money on some level, but some obviously more than others. When you think of what “value” means, you can have someone who watches every dollar that passes through their fingers or someone that spend in a cliche way, as if there is “no tomorrow.”

Neither extreme works all that well, but you should be leaning more toward the former, and understanding the value of a dollar isn’t about being cheap but cautious, content and centered on coming up with the best way to make it stretch far beyond your wildest financial dreams.

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