7 Important personal finance rules everyone should know
You’ve likely encountered typical financial wisdom, such as maintaining a budget and living within your means. However, lesser-known strategies can significantly impact your financial well-being and savings.
We’ve consulted financial experts for insights on unconventional money-saving tips, ranging from daily practices to long-term personal finance strategies. Here’s what they recommend:
01. Spending more upfront can save more later
Opting for low-priced, low-quality items often results in frequent replacements, ultimately costing more. Prioritizing quality over price ensures durability and longevity, potentially saving money in the long run.
While some may opt for second-hand shopping to save on high-quality brands, it’s advisable to seize retail sales events, such as Amazon Prime Day, for significant savings on big-ticket items. Additionally, purchasing seasonal goods, like patio furniture and winter clothing, at the season’s end can yield substantial discounts.
Other money-saving personal finance strategies include enrolling in free loyalty programs and utilizing online coupons before making purchases.
02. Avoid strict budgeting and sudden overhauls
While a detailed budget is crucial for achieving financial goals, excessive constraints can lead to burnout. Similarly, trying to overhaul all spending habits overnight is often unsustainable.
Instead, start by making small adjustments to your spending and saving routines, gradually expanding upon them as they become habitual. Allocate funds in your personal finance budget for expenses that hold importance to you, such as social outings with friends or partners.
Look for opportunities to reduce spending elsewhere, like canceling unused subscriptions or minimizing energy usage to lower bills.
03. Watch out for convenient payment methods like auto-renewal
In today’s society, it’s incredibly effortless to spend money impulsively, whether it’s subscribing to services or making impulse purchases online.
However, this ease of spending can lead to unconscious consumption. Instead, it’s advisable to slow down and make spending decisions consciously.
One effective personal finance strategy is to always create a shopping list before entering a store or making online purchases. Allocate a specific time each week for online shopping to avoid impulse buying. Before making a purchase, ask yourself if the item is truly necessary and if you’ll use it regularly.
Regarding subscriptions, it’s easy to forget about those set to auto-renew. Financial experts recommend periodically conducting a “subscription cleanse” to review all subscriptions and cancel any that are no longer needed or utilized.
04. Automate savings to prevent impulsive spending from idle money in your checking account
Consider setting up automatic transfers to a high-yield savings account. For instance, if you receive your paycheck at the end of the month, schedule a transfer for the first day of the following month. This practice helps you build an emergency fund without the need for active personal finance decision-making.
Additionally, automate contributions to your retirement account. If your employer offers a 401(k) plan with a matching contribution, seize this opportunity. Failing to utilize a matching program is akin to disregarding free money.
Even if you withdraw funds early and incur a penalty, the benefits outweigh the costs. Alternatively, if you lack access to a 401(k), establish an individual retirement account (IRA) for automatic contributions.
05. Pay attention to all transactions, including small ones, on your credit card statements
While it’s tempting to only focus on significant charges when reviewing statements, it’s crucial to scrutinize smaller items as well.
Not every fraudulent activity involves large sums. Thieves may initiate testing transactions with small amounts, which are easily overlooked. Failure to identify these could lead to more substantial fraudulent charges later.
It’s recommended to review credit card statements monthly. If you spot any unfamiliar charges, regardless of their size, promptly report them to your credit card issuer.
06. Keep one main investment account and open another for short- to mid-term projects
Money experts suggest diversifying your investment accounts to align with different goals and timeframes. While many clients already have long-term investment accounts, it’s advisable to open additional accounts for mid-term objectives, such as purchasing a home, funding education, buying investment property, or starting a business.
By segregating investment accounts according to specific personal finance goals and time horizons, we tailor the portfolio allocation accordingly. This approach not only saves time but also optimizes returns. For instance, if buying a home is a short-term goal, the “real estate fund” should primarily consist of short-term assets.
07. Understand that there’s no universal approach to personal finances
Your personal finance strategies should reflect your unique values and life circumstances, not those of others. Identifying tools that align with your priorities is key to effective financial planning.
Before crafting a financial plan, clarify what’s important to you: your ideal home, work-life balance, and personal interests. Once you’ve defined your goals, you can determine the necessary income, investment strategies, etc.
Stay adaptable to both daily and global changes, and don’t feel confined by rigid financial ‘rules.’ While there are many conventional guidelines, it’s crucial to tailor your personal finance plan to your specific needs and remain open to adjustments as necessary.
