Buyer's Remorse, Finance

5 Basic Principles of Personal Finance for a Stable Household

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Financial woes are a common cause of stress and a surprisingly common reason for divorce. Your entire family can suffer when you lack ample funds, are buried in debt, or have other financial concerns. Managing your family’s finances responsibly may seem impossible at times. Still, there are a few sound principles that you can apply that can profoundly affect your family’s financial stability and well-being in the future.

1. Live Below Your Means

Living well below your means makes sense regardless of your current income level. You can more easily manage extra expenses on reduced income when unexpected situations develop. In addition, you can more easily avoid debt while saving more money for the future.

If your lifestyle stresses your budget or prevents you from saving and investing, now is the time to scale back and look for things to cut outgoing expenses.

Rule of thumb: For housing, spend no more than 30% of your gross monthly income on your rent or mortgage.

2. Always Look for Savings Opportunities

Even if you are already living below your means, you should never pay more money than you have to for various items.

Most items will eventually go on sale or may be purchased with a coupon. This includes everything from clothes and food to furniture, cars, and more.

Avoid making impulsive or emotional decisions, and always look for ways to save on purchases.

Rule of thumb: Before buying something online, search multiple online stores to see if other places are cheaper, or search Google for “[company] coupon” or a discount code for what you’re buying. Honey is a very helpful extension for the Google Chrome browser that automatically searches for and applies coupons to your purchases online.

3. Have an Emergency Fund

Having an emergency fund is essential for your family’s financial security. Without an emergency fund, you may have no way to pay for medical expenses, home repairs, and other expenses that may crop up out of the blue.

Your family needs to have some extra money to fall back on. Save at least a small amount of money each month in this account so that the balance grows over time.

Rule of thumb: Have at least six months (preferably 12) of living expenses saved up as a buffer.

4. Avoid debt

You should also avoid debt whenever possible. Some items, such as a house, are difficult to purchase without a loan.

However, many people go into debt to purchase TVs, computers, vacations, and other non-essential items. These are items that you could easily save and pay for.

Remember that debt costs money in the form of loan fees, interest charges, and more, and these expenses can be entirely avoided if you pay cash.

Rule of thumb: Don’t take out credit on a depreciating asset. In other words, if the item’s value decreases drastically over time (TV, computer, vacation), don’t go into debt for it (including credit cards). Houses (ideally) increase in value, as do businesses and (hopefully) educational purchases. Cars are difficult as they straddle the line; they usually depreciate, but we all need a car. Ideally, put at least 20% down (preferably 50%+) and pay it off over three years or less. You don’t need that fancy Lexus when the used Toyota will do just fine.

5. Save and Invest for the future

Another vital step for financial security is saving and investing in the future, which exceeds the money you are saving in your emergency fund.

Depending on your needs and lifestyle, you may save for a vacation, a new car purchase, a college education for the kids, and more. You also need to invest in having funds available for retirement down the road.

Many free robo advisors and automated investment tools will help you get a good overall view of your finances. Use these tools to help! It’s hard to keep track of everything by yourself.

Remember that avoiding debt and having more money to save and invest is easier when you live frugally. It may take time for your family to make frugal adjustments, but this effort will be rewarded by improved financial security.


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