America’s love affair with debt and consumption has left far too many of us financially hamstrung and struggling to get ahead. After all, the average U.S. household carried $15,672 in credit card debt and $130,922 in total debt in 2015. Add in the fact that the average indebted student left college with over $35,000 in student loans debt last year, and you’ll see what a grim picture we have painted.
All too often these days, the American Dream means living paycheck to paycheck, and then charging what you can’t truly afford. It means trading in your car every few years, buying a house so big you struggle to afford and maintain it, and teaching your kids to do the same. And a lot of times, it means schlepping through a job you simply tolerate for decades longer than you really needed to.
But, what if you don’t want to be “average?” While some people will always follow the crowd, some of us were never meant to follow.
Money Rules to Help You Get Ahead
You can choose the common American narrative when it comes to money, or you can forge your own path. You can decide to spend every penny you make (and then some), or you can set aside money for the future, opt for simplicity, and choose freedom from debt instead.
You can be like everyone else – or you can dare to be different.
Here are 10 money rules you should live by if you want to create a unique life devoid of debt and filled with dreams for the future:
Rule #1: Live below your means.
No matter how much money you earn, it’s easy to spend every cent. But, what if you spent less than you earned as a general rule? What if, through each stage of your career, you vowed to save a certain percentage of your income no matter what?
Living below your means is a challenge for everyone – mainly because it forces you to make a few sacrifices today. Still, this rule is the cornerstone of a financially responsible and potentially rich life. When you spend less than you earn, you’ll always have money to save.
Rule #2: Pay yourself first.
When you prioritize your “wants” ahead of savings, it’s easy to end the month without a single cent left. That’s why many financial advisors suggest you pay yourself first instead – as in, you should set aside a certain amount of money each payday before you spend money on anything other than your essential bills.
“When you get your paycheck, take out money for yourself first,” says Tony Liddle, CEO and financial advisor from Sark Investments. “Put it in a savings account and don’t touch it.”
Once your savings is safely stashed away, then — and only then — you can pay bills and pay for your “wants.”
Rule #3: Treat your retirement savings like a regular bill.
We all want to retire one day, right? So, why do so many people treat retirement savings as an afterthought?
If you want the money to be there when you’re ready to retire, you have to start saving. Of course, the best time to start is now – no matter how old you are.
If your employer offers a work-sponsored plan (and especially one with an employer match), this is the best place to start. By contributing as much of your paycheck as you can afford to sacrifice now, you’ll be in the best position to build a nest egg that will last.
“Make sure you’re taking advantage of the vehicles available to save for retirement after you have set up your emergency fund,” says Peter Huminski of Thorium Wealth Management. By saving automatically and effortlessly, you can create your very own “retirement paycheck.”
Rule #4: Wait 24 hours before you make a big purchase.
If you’re someone who has struggled with impulse purchases in the past, instituting a 24-hour or even one-week waiting period before a large purchase is a smart idea.
By forcing yourself to wait before you buy, you’ll have some time to mull over each purchase. And sometimes, that extra bit of time is enough for you to talk yourself out of a big purchase – or even forget about it altogether.
Want to avoid making big financial mistakes on the fly? Force yourself to wait at least 24 hours before you buy anything other than groceries and gas.
Rule #5: Before buying something, ask yourself if you really need it.
Trent has written about the 10 questions you should ask yourself before you buy anything. Although each question is unique, they all rely on the same general idea:
Before you buy something, you should consider whether you really, truly need it. Ask yourself if you could borrow something similar instead. Or perhaps you already have something at home that would work well in the item’s place. Other questions to ask before you buy include:
- Can I make it myself?
- Can I delay this purchase?
- Can I buy it used?
- Have I looked for a cheaper alternative?
By asking these questions before you make a notable purchase, you should save money and cut down on waste in the long run.
Rule #6: Automate your finances and your investments.
While most people have good intentions when it comes to their finances, they don’t always act on those intentions. That’s why many financial advisors suggest automating your finances over the long haul.
“Automate as much of your finances as possible – income, savings, and expenditures – in that order,” says financial advisor Anthony Reynolds of True North Wealth Management. “This allows you to pay yourself first while simultaneously leveraging the power of automation to satisfy your other money obligations.”
By setting up automatic contributions to savings and retirement, you can take a hands-off approach and “set it and forget it.”
Rule #7: Diversify, diversify, diversify.
As the old saying goes, don’t put all of your eggs in one basket. According to most financial advisors, the key to getting ahead and staying ahead is diversifying.
“We normally think of this in terms of asset allocation — the ratio of investing in stocks vs. bonds or in big companies and small companies, domestic companies and foreign companies,” says Aaron Hatch, co-founder of Woven Capital. “But financially successful people often have more than one source of income, too.”
Diversify your investments and your income streams and you’ll be in the best position to weather financial storms and recover from financial mishaps.
Rule #8: Ignore the Joneses.
Remember how the average American family is mired in debt and struggling to get ahead? Yep, the mythical “Joneses” are all around us – driving flashy cars with payments they can barely afford and living paycheck-to-paycheck despite what they want you to think.
If you really want to get ahead of what’s “average,” you have to live a lifestyle that lets you cut out that noise. You have to learn to ignore the Joneses petty antics, and to see their spending for what it really is – a desperate attempt to fit in.
Remember, when it comes to the Joneses, your perception isn’t always the same thing as reality. Just because someone looks like they can afford anything doesn’t mean they can.
Rule #9: If you have to finance it, you probably can’t afford it.
Here’s a fairly conservative financial rule to consider, but one that works rather well: If you can’t afford to buy something in cash, you can’t afford it. Period.
Imagine never financing a car again or saving up the money for your next home remodel. Imagine how much more money you would have each month if you didn’t owe a cent in debt payments, plus how much interest you would save.
While this rule may not always work out in the real world, especially when it comes to a buying a home, it is one that can make you wealthier if you apply it more often not. Any time you need to finance something, ask yourself if you could afford to pay cash. If not, can you really afford it in the first place?
Rule #10: Don’t put off until tomorrow what you can do today.
This is perhaps the most important rule since it applies to every aspect of our financial health. Whether your task involves saving money, creating a budget, retirement planning, or getting out of debt, it rarely pays to put it off.
If you truly want to get ahead and avoid “normal,” you should strive to never put things off. Confront financial issues and situations as if your future depended on it. Chances are, it will.
The Bottom Line
No matter where you are on your financial journey, creating a list of rules to live by can be a smart move. Just like creating and living with a budget, defining which financial principles you choose to live by can help you stay on track and build more wealth over time.
What makes this journey especially hard is that the ideas we’re suggesting here aren’t all that “normal.” To really get ahead financially, you have to buck current trends and do things your way.
Sometimes that means going without, and other times that means telling others “no.” Just remember, doing the right thing isn’t always easy, nor should it be. But string together enough of the right moves over time, and you’ll be a whole lot wealthier.
What financial rules do you live by? Do you agree with everything on this list?