Five must-follow financial rules

source
The reason for financial sanity is not because of how much you earn as income or salary from business or the workplace. It has a lot to do with your lifestyle and approach to personal finance. Financial sanity refers to how healthy your finances can be based on your approach to finance usage. When we talk about personal finance, you aren't concerned with how much money you get as an individual. However, how effective are you at managing your income flow? It also includes knowing how to plan your finances for the future. Your attitude toward spending and money management has a lot to do with your financial sanity. Financial sanity allows us to achieve financial stability and growth. It is one thing to acquire wealth; it is quite another to direct what you have obtained. It is critical that you follow some guidelines in order to maintain your financial health and stability.

1. Know your Net Worth

Your net worth is what determines your financial situation. Even in any country, the government tries as much as possible to calculate how much revenue they generate (Networth) in order to properly and efficiently plan how their spending would look like. By keeping track of your daily earnings, you can easily calculate your annual earnings. When this is done correctly, you will be able to calculate how much you have earned in a year.

source

Why is this important?

This is important because the results influence how you should spend your money. Understand the item you are purchasing and its purpose. Unwise spending can ruin your finances. It is strongly advised that you know your worth. It is the amount that you consciously budget your income vs. expenses in order to spend within your means and manage your lifestyle expectations. We should all set spending limits based on our worth.

2. Monitor your lifestyle expenses

This is yet another key factor and rule for maintaining a healthy financial situation. We all want a lot of things. You're walking through a boutique and notice a beautiful pair of shoes that you really want. Or maybe you're passing through the same boutique and you see a beautiful dress neatly displayed and want to buy it. Going after what we want is a good thing, but it is not required. Humans have a lot of desires. You will never be able to satisfy your desires no matter how hard you try. On that note, it is critical that you scale yourself. Differentiating between wants and needs allows you to better manage your spending.

3. Needs before wants

Wants are optional, whereas needs are required. Needs take precedence over desires. Plan how you will spend your money. Understand the percentages set aside for savings, expenses, and investment. For example, if you need a regular affordable car for work and driving the kids to school, and you also have a mere desire for a clean Honda SUV, your desire for a luxurious Honda SUV is merely a desire, not a need. In practice, what you require right now is an affordable car for your job and for transporting your children to school. Your needs should take priority in your budget. Spending additional funds on wants should only occur after your needs have been met. Again, if you have money left over after paying for what you need each week or month, you don't have to spend it all.

source

4. Save before spending

The rule of saving before spending is a good place to start when it comes to developing a healthy financial habit. It's a good habit to save a small percentage of whatever you get from any input. It is the small savings that add up to something significant in the long run. Do not overlook the smallest ratio of savings because it may come in handy in the future. Save for the present, save for the future, and possibly save for retirement. Many people make the mistake of waiting until they retire before beginning to make retirement plans. Your retirement plans began while you were still relatively young in your civil service. The worst tragedy is not having anything to show at the end of retirement.

source

The following factors should guide your retirement savings:

• Make a retirement plan.

• Set a long-term goal.

• Invest your savings.

• Have a business plan for after you retire.

5. Create an emergency fund

source
Emergency funds can literally save your life. Every individual, company, and organization that must remain operational should also maintain an emergency fund. It is the best rescue when all other options have failed. Create funds for emergencies on purpose. Life emergencies are unavoidable; therefore, to avoid completely breaking down in the face of a minor financial shock, set aside funds to cover your emergency needs.

Last thoughts

Even if you are not in business, perhaps as a student, you must establish an emergency fund to meet your immediate needs at school. I recall being rescued from pressing school needs several times by my emergency savings. If you haven't already done so, do so now because you'll be glad you did.