Do you want to develop robust finances? If so, here are some rules you’ll want to follow:
Always Live Below Your Means
The first step is to get into the habit of always living below your means. Reducing your outgoings and focusing on saving is one of the best ways to ensure your money always goes into the process of growing your wealth instead of holding you back.
Therefore, get into the habit of spending less than you earn consistently. Practice being frugal when you go out or spend time with friends.
Prioritize the things that you need over the things that you want. Focus on buying the essentials and then using your surplus to invest and save so you can start generating an income.
Save First
Another rule is to save first. You want to put away your money as you get it so you don’t run out by the end of the year.
Saving first is a hard discipline to get into at first, but it is something that comes with time. Automating the process gives you the highest chance of success.
Build An Emergency Fund
You also want to build an emergency fund to achieve financial robustness. Having some money put away that you can use in your hour of need is essential.
Most people aim for between 5 and 7 months of liquid cash to cover their costs in the event of a disaster. If you can go for longer than that, that’s even better.
Funds should cover things like housing and healthcare. However, you also want to budget for things like food.
Manage Debt
It’s also worth using someone, including your trusted partner for mortgage and loan solutions, to manage debt. Sometimes, debt is good because it provides you with access to assets you can use to generate wealth. However, you still need to be cautious, even with changes in interest rates.
Most experts believe that bad debt comes in the form of consumer loans and credit card debt. This debt is expensive and can take a long time to pay off unless you have a lot of money coming in from multiple sources.
Good debt is the debt that makes you more money than it costs you. Usually, going into debt to buy a property is a good idea because it means you can make additional money you wouldn’t have had before.
Invest For Growth
Starting early and investing for growth is another element of robust finances. Once you can get that flywheel going, you can start harnessing the power of compound interest and really get things moving.
Yes, this approach takes time and many people have to adopt a slow and steady approach to it, but once it starts, it is hard to stop, except during severe market downturns.
For this reason, it is essential to maintain a long-term perspective. Focus on periods of up to twenty years instead of what’s likely to happen over the next six months or so. That’s critical.
