Did you make any New Year’s resolutions about money? And let me guess, somehow, those good intentions just didn’t make it to March, right? Relax. Sometimes, it is useful when you get back to basics. Here are 3 simple rules of finance that make excellent It’s-Almost-Spring resolutions. Try them and see if they help with your goal of living a sound financial life.
Let’s get started:
1. Determine Your Wants vs. Needs
This is the simplest rule to live by, but the most difficult for people to adopt. A need is something critical that’s required to live. Things like food, shelter, clothing, companionship, all of those are essential to our everyday life. A want, on the other hand, is anything that doesn’t fall into the first category. Clothing is a need, but do you really need a $200 pair of jeans? No! There is nothing wrong with the $20 jeans from Old Navy. In fact, some of my favorite jeans have come off a sale rack from my favorite department store. You should also consider getting secondhand jeans from a consignment or thrift store, especially when you are buying them for small children who will outgrow them anyway. Same goes with gourmet food. Do you really need the name brand olive oil or will the store brand do just fine? My guess is no one will be able to tell the difference!
Go through your monthly purchases with this mindset and determine where you can cut back and save money. It’s easier than you think.
If you believe you are only spending money on what you need and not on what you want, then take this challenge: Look in your garage, attic and closets. How many things that were once a “need” are now collecting dust? And if you hadn’t bought those items, how much more cash would you have in your wallet? This reality check will really give you some perspective and help you keep your goal of spending more on those needs, and less on your wants.
2. Live Within Your Means
The second simplest rule to live by and probably the second-least adopted strategy: Live within your means. If each day you were given $5 to live on, and that was the only resource you had, you’d find a way to make it last. Let’s say at the end of the day you had $1 remaining. Knowing you’d receive another $5 tomorrow, would you spend the last $1? The next day you are given $5. Would you spend $6 the next day or only spend $4, and have a savings of $2?
As our income increases, we tend to increase our spending. Does an increase in income warrant an increase in spending? No. It should warrant an increase in savings. If you receive monthly structured settlement payments and each month that income gets lost on incidentals, you are losing an opportunity to get ahead. Reach out to a company like J.G Wentworth. They may be able to buy your future payments for a lump sum payment now, which you could use to either help decrease your debt or start a savings account.
3. Yes, You Need a Budget
You’ve heard it more than once, maybe more than a dozen times: You need a budget. And you do. Three things you can try:
- Download a budgeting app like Mint.com. You can download Mint for FREE and you it’s a great tool for personal finance help. You can connect all your accounts, track your spending and pay bills, all from one place.
- Use a simple budgeting worksheet, like this one from Consumer.gov. The more you plan ahead and know what you can and can’t spend, the easier it will be to meet your goals.
- Inquire at your bank or credit union. Many financial institutions offer online personal finance management tools. Banks want to keep their customers happy, so if there’s anyway they can help, they will.
Once you follow these 3 Simple rules (or even if you choose to only do one), you will find yourself in a much better financial situation before you know it.