Personal Finance is all about how you handle money. It’s about earning, saving, investing and spending. Over time, we learn certain “best practices” when it comes to handling money.
Those best practices are presented here in the form of Ten Commandments of Personal Finance, each with a subset of tactics to consider when creating your own system for handling the various financial transactions that are part of daily life.
I. THOU SHALT PLAN AND THEN ACT
The first commandment actually has two parts – planning and acting. The planning part involves setting financial goals and then creating a financial roadmap (budget) that will let you reach those goals over time.
The acting part involves nothing more complicated than following that budget. If you’re part of a couple, the planning and acting parts should involve you and your spouse (or partner).
Use technology to your advantage. Numerous apps and software programs exist that can perform all pertinent calculations and allow for “what-if” planning that can be very helpful.
II. THOU SHALT SAVE AND INVEST WISELY
It’s important to “pay yourself first” to make sure money is set aside for emergencies and unexpected expenses. Learning the value of compound interest helps you understand how savings can grow well beyond the amount you originally set aside.
Understanding how to invest and which types of investments to make at each stage of your life is critical. Some financial planners promote market timing or predicting future market prices as a strategy. Most experts, however, suggest a more cautious buy-and-hold strategy.
III. THOU SHALT NOT OVERSPEND
This sounds simple enough – don’t spend more than you earn. The problem is most people have to borrow from time to time – buying a house is one good example.
Learning when to buy a car vs. leasing one, when to rent a place to live vs. diving into a mortgage, even when to purchase a subscription (to software for example) vs. buying outright can save money and is sometimes the better move.
IV. THOU SHALT PAY BILLS ON TIME
One of the fastest ways to ruin your credit score is to constantly pay bills late – or even worse, miss payments.
If you buy something on time or purchase a service that requires payments, make those payments on time – always.
V. THOU SHALT LIMIT DEBT
The best way to limit debt is not have any. Pay off credit card balances and only take out loans when you are unable to save the money up front.
Using a debit card is another way to ensure you will not be paying for accumulated small purchases over an extended period – with interest.[related_posts]
VI. THOU SHALT TEACH THY CHILDREN ABOUT MONEY
Besides just being part of good parenting, taking time to teach your children about the value of money and how to save, invest and spend wisely can pay off down the road.
That is, unless you relish the idea of your adult children living in your basement and depending on you for support, food and housing because you failed to teach them how to spend wisely.