7 simple money rules
April was Financial Literacy Month, but most of us were probably overwhelmed by our tax returns to change how we manage our money. We’ve had four weeks to recover from the stress of Tax Day, and I think that it’s a good time to make a clean start with our money and finances.
“Money management is not difficult,” declares Mary Hunt, founder and publisher of “Debt-Proof Living,” in her book, “7 Money Rules for Life: How to Take Control of Your Financial Future” (2011). Here’s an easy way to take the first step:
Start by imagining your financial life as a big, cluttered room filled with things like income, bills, debts, taxes, mortgage, savings, loans, and retirement accounts. Use the “Clean Sweep” approach to empty the room. Then apply Hunt’s seven simple money rules to everything you put back in your financial life:
1. Spend less than you earn. “Lowering spending to increase investment income is the way to grow wealth” (page 48), Hunt advises.
2. Save for the future. “As you receive income, transfer 10% of it into long-term savings” (page 64). Your emergency fund should be six months of paychecks, kept in a separate account that is safe, available, and interest-bearing.
3. Give some away. “Giving is the way that you express just how grateful you are for all that you have” (page 85). Hunt suggests a 10-10-80 rule: save 10%, give 10%, and live on 80% of your net income.
4. Anticipate irregular expenses. Plan for irregular and unexpected expenses like auto maintenance, pet care, Christmas, property taxes, vacations, and gifts.
5. Tell your money where to go. “A good Spending Plan addresses every bit of income by giving every dollar a specific job to do” (page 100). List your income, essential fixed expenses, non-essential expenses, and miscellaneous monthly expenses.
6. Manage your credit. “A high [credit] score is one of your most valuable money management tools” (page 112). To be creditworthy, you don’t need to be in debt; you just need to use credit at least three times a year, and pay the balance in full.
7. Borrow only what you know you can repay. “The only safe way to borrow money is to have a means to pay off the debt in reserve” (page 128). Borrow the least you can get by with to achieve your intended result, repay debt quickly, and have an escape plan.
To learn about the Rapid Debt-Repayment Plan and read money management articles, visit DebtProofLiving.com. Or take Financial Literacy Month’s “Thirty Steps to Financial Wellness” pledge at http://www.financialliteracymonth.com/Default.aspx.
How do you keep yourself debt-free and in the green? What money management tips can you share?