The basics of money management is simply; saving, spending. I’ve broken it into simple rules of thumb. Rules of thumb are rules that will work most of the time.
- Save enough that you can maintain your lifestyle for six months.
When a surprise cost comes up, (medical, losing income etc..) you need to be able to cover it without having to get a costly loan. The logic is it takes an average of six months to find a new job.
- Don’t spend more than you make, spend less.
This may sound obvious, but a lot of people go into debt to maintain their lives. The reason that most financial gurus tell you that debt is bad is because of the high interest rates that are changed. Most people don’t know this but if you buy a house for $200,000 with a mortgage at a 3% interest, by the time the house is paid off it will have cost you $303,555.
Rules for it all
- 20-20-80 rule
- 20% for a rainy day
- 20% to give away
- 80% to live on
This is a easy place to start working toward.
Fact: on giving away most people go into debt for Christmas. If you started saving for Christmas now you might have money left over.
Fact: 80% of people live paycheck to paycheck. When they get an unexpected expend they have no safety net.
If you’re interested in learning more just google “early retirement”.