If you’re looking for a fresh start in your finances, or even a few reminders to help you stay on track, we have 3 simple financial rules you can follow!
Rule 1 – Savings
One size doesn’t fit all when it comes to saving, but a great place to start is saving 10% of your income. This rule works best if you can start before you’re 25, and you continue saving at that same rate until you’re of retirement age. When you begin saving early, your money has the chance to grow with interest each year. Most people don’t save enough for retirement so it’s important to get started early. If you’re over 25, consider ways you can save well over 10%. Make sure you are contributing to your company’s 401(k) plan and receiving the full match. It’s also beneficial to have money directly transferred into a savings account every time you receive a paycheck. In addition, creating a budget can help you prioritize and reallocate where your funds are going.
Rule 2 – Emergency Fund
Peace of mind is truly priceless. Building an emergency fund with money to cover 3 to 6 months worth of living expenses enables you to face whatever unexpected situation comes your way. There are always financial surprises in life – an unexpected medical bill, a needed car repair, a potential job loss, and more. Having a stash of money set aside will prepare you for an emergency and lower the inevitable stress of the situation. How do you get started? Begin contributing a small amount from each paycheck into a savings fund. Save your tax refund if you receive one. And cut back on costs in other areas if needed.
Rule 3 – Debt
This is the least fun of the rules, but perhaps the most important. We recommend creating a list of all of your debts and listing each of your debts from largest to smallest interest rate. Set aside money each month to make your minimum payments, and then put extra funds toward the highest-interest rate debt. Once that debt is paid off, move your extra funds toward the next highest interest rate debt. Many people like to pay off small debts first regardless of their interest rates because they want fewer debts overall. However, research indicates debts should be paid off in order from the highest interest rate to the lowest interest rate to come out ahead financially. *
For more advice on financial rules to follow, watch here.