7 simple money rules to live by

Here are seven money rules that will help you build a solid financial foundation. The best thing about these rules is that they're all things that you can control.

This year proves there are certain things we can't control.

Family with bicycles and map.© Getty Images

By Matthew Goldberg, Bankrate

COVID-19 is a prime example. The pandemic affected many people's jobs, their health and other aspects of their lives. This crisis makes it easy to feel like no amount of planning is ever good enough.

However, there are seven money rules that will help you build a solid financial foundation. The best thing about these rules is that they're all things that you can control.

1. Budget your money

A budget tells your money where to go, says Ashley H. Coake, certified financial planner and enrolled agent at Cultivate Financial Planning in Radford, Virginia.

"When you don't have a budget, your money just kind of goes where it wants to," Coake says.

Budget for your fixed expenses, which may be housing costs (mortgage or rent), utilities, car payment, insurance or other required expenses. 

You just never know when something may creep up that can really put a dent in your wallet. For example, your car has broken down and you need it to be towed away. You must ensure that you can contact someone reliable to do this or that you already purchased a lead yourself so that a friend can tow your truck or caraway. You could look at tow truck leads to ensure you’re always prepared. Then there are the added problems of having to take care of your home on the outside as well as in. Yard Maintenance is a big thing and it is important for the look of your house and the value. Unless you live in a community where your homeowner's association positions cover landscaping or yard maintenance, you will be responsible for mowing, spraying, watering, removing snow and ice, and making sure your garden meets city standards. This is exactly what can bring costs up. Be sure to budget for this type of maintenance - spray cleaning and also drive maintenance. Lastly is insurance. If you have a home loan, you will likely also have a responsibility to pay for home insurance, as your lender will require you to have homeowners insurance, the cost of which must be taken into account in the costs of buying a home. You don’t want to be uninsured in any circumstance.

"The rest of it's discretionary, and I feel like that kind of gives you a little bit of freedom in the budget," Coake says.

Odds are your budget is going to change. Matt Elliott, certified financial planner at Pulse Financial Planning in Rochester, Minnesota, says you'll need to monitor your budget monthly for it to be effective. Otherwise, you're going to fall back into old habits.

2. Have an emergency fund

COVID-19 is a reminder that we never know when an emergency will happen.

Having enough in your emergency fund to pay six months of your expenses is the recommended way to weather an emergency. The best place to put this money is in a high-yield savings account, so that it's earning a competitive amount of interest each month.

Assume an emergency - whether it's a home or automobile repair, a medical issue, hospitalization or illness or unemployment - will happen to you at some point.

Contributing to an emergency fund, especially when times are good, can help prepare you for the times when you need a financial cushion.

Many people have likely had to use some of their emergency reserves during these challenging economic times. For those that have, try to rebuild this fund whenever it's possible.

3. Eliminate high-interest debt

There are two popular approaches to paying off debt.

The avalanche method is when you focus on paying down the highest interest credit card or loan first. The snowball method focuses on eliminating the lowest balance, regardless of the annual percentage rate (APR) first.

"If one is going to work for you, just go ahead and do that," Elliott says. "But if I'm working with someone, and a big part of my job is helping them be successful, I generally will recommend the avalanche method because that's going to give them the least amount of interest paid over the life of those loans."

4. Put savings first

Budgets can feel restrictive, Cultivate Financial's Coake says. But having a certain amount of money automatically going to your savings account can help separate your spending account from your savings account.

"As soon as that money comes in, or even if you can do it from your paycheck directly, have it go into a savings account so you don't miss it," Coake says. "And then that money that is in your [checking] account, is yours to do with what you want during the month."

Make saving automatic (by using split-deposits), contribute to your 401(k) and take advantage of a 401(k) match if available.

5. Keep your savings growing with a competitive yield

It might feel nice to have money sitting in a checking account. But if that account isn't earning interest, or isn't earning a competitive annual percentage yield (APY), you should consider moving it elsewhere.

Often, online banks pay the most competitive APY. Though savings rates have decreased, compound interest still allows your money to grow over time.

You can compare rates on Bankrate to find the right high-yield savings account for you.

6. Keep your savings goals separate

Savings goals are sometimes referred to as buckets of money. So, an emergency fund and a savings account for a vacation are two different savings goals. You might want to consider putting these savings in different savings accounts.

At the very least, it's a good idea to keep your savings stockpile away from your checking account. Commingling money in a checking account can sometimes make you think you have more money than you actually have - especially if most of that money is needed to pay upcoming bills.

7. Make sure your money is protected

Make sure your money is protected and in a safe place.

A Federal Deposit Insurance Corp. (FDIC) bank is one of the best places for your money. You can make sure your bank is a FDIC-insured bank by using the BankFind tool.

It's also important to make sure your money is within FDIC limits and guidelines and in an account that's eligible for FDIC insurance. Checking accounts, savings accounts, money market accounts and CDs are some of the accounts covered by FDIC insurance.

Part of the reason why FDIC banks are considered safe is because they're backed by the full faith and credit of the U.S. government.

Concentrate on the things you can control

In most cases, you should prioritize the previous tips before investing.

To Elliott, the number one mistake he sees is people that are too eager to invest when they might have credit card debt, aren't taking advantage of a company match in a 401(k) or maybe don't have an emergency fund.

"I don't blame people for that," Elliott says. "I think a lot of it is just kind of how our brains are wired to work."

Focusing on the things you can control is the advice Elliott gives. Unlike that one stock you might be watching, these money rules are all things you can control.

"A lot of those other pieces that are really what's going to have the major impact on your long-term success," Elliott says.

See more at Bankrate


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Finance Magazine: 7 simple money rules to live by
7 simple money rules to live by
Here are seven money rules that will help you build a solid financial foundation. The best thing about these rules is that they're all things that you can control.
Finance Magazine
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