• Niranjan

Thumb Rules of Personal Finance

We live in a world where knowledge overload is a part of daily life. When it comes to personal financial information, however, perhaps simpler is better. Customers can use financial planning to see if they are on track to meet their objectives and to map out their path to total financial success. Without a simple set of goals, it's difficult to know what personal financial success looks like. Set your objectives and then create a concrete, step-by-step plan to get you there. Here are some personal finance golden rules that everyone should be aware of.

Distinguish between wants and needs.

Confusion wants to keep people in constant financial distress to meet their basic needs. Recognize how basic human needs are – food, clothing, shelter, health care, reliable transportation, and so on. Everything else is, in the end, a desire. This simply means that we should actively choose what we want rather than allowing our financial security to be jeopardised. To tell the difference between a want and a need, I recommend waiting seven days before purchasing something. If you still want it on the seventh day, you need it; if not, it was just a wish.

Create a positive mindset.

Begin to alter your perspective on money. Controlling your spending habits is the first step toward building wealth. Some people, for example, save well while others spend everything they have. Many people believe that you can only save if you earn a lot of money, but the truth is that you can start saving right now, regardless of your income. So, what constitutes a sound financial mindset? It doesn't matter how much you save at first; the important thing is to get into the habit of saving. It also entails being aware of your spending habits and determining whether or not you require the items you purchase. I guarantee that once you start tracking your expenses, you will be astounded to see where all your money goes! Decide what you believe is a good investment. It's important to remember that it's not about how much you have, but rather how much you can keep.

Know where you stand financially.

One of the most common personal finance problems is not knowing what your current financial situation is. Debt, in particular, creates an atmosphere in which people refuse to be honest with themselves. To overcome debt, you must first confront it, and you must understand where all of your money comes from, where you invest, and how much you owe. Let's use the example of a road trip to better understand this. To begin, you must first determine where you are in order to arrive at your destination. You'll be able to get to where you want to go once you know your starting location. You'll know where you stand to get where you want to go if you have a clear picture of your sources of income, expenses, and debt. This can be done quickly with the help of an app or by making lists on a computer or on paper. To figure out your financial situation, make three columns: money in, money out, and debt. You will be able to strengthen your financial situation and make changes once you have a better understanding of it.

First and foremost, pay yourself.

The phrase "pay yourself first" is frequently cited as the number one personal finance golden rule. Paying yourself first will put pressure on you to make enough money to cover all of your expenses. The goal is to get your brain working and force you to consider different ways to make more money. It will assist you in moving from "I can't afford that" to "How can I afford that?" It will make you wiser, improve your standard of living, and generate wealth in the long run. So, how does the "pay yourself first" method work? Setting aside a fixed percentage of your income into a savings account before expenses is an easy way to do this. This is, of course, in contrast to common practise, which dictates that all expenses be paid before deciding what you can save from the rest. I know it's difficult at first, but the key is to get out of your comfort zone and look for other sources of income. These days, all you need is a laptop and a little money to become a millionaire. Ask Mark Zuckerberg, the founder of Facebook, if you don't believe me. How much should you pay yourself first? I'm going to say it depends on the situation. The first step should be to create a monthly budget. Take a look at your monthly living expenses first. Food, housing, utility fees, insurance, and other recurring expenses are included.

Subtract this from your total income expenses. Anything left gives you an idea of what you'll be able to accomplish each month. If this figure is too low, you should look for areas where you can save money. Some people prefer to pay a set amount every month. This is appropriate for people who have a fixed daily income. Others may choose to put a set amount of money into their savings account each month. They will pay a different amount depending on how much money they make on a per-time basis. For self-employed individuals, this option may be advantageous. Whatever option you choose, make sure that the amount you pay yourself is appropriate. At the same time, you shouldn't put too much effort into it. Your net worth will automatically increase if you follow these golden rules. It may be necessary to keep a close eye on things for the first few months to ensure that the process works as intended. Remember that controlling where you spend your money, rather than allowing your expenses to dictate your choices, will change your financial life.