We all need to set our own goals that guide our overall decisions in Personal Finances. Below are 10 Golden Rules for Personal Finances to live by. Do feel free to adopt these golden rules or modify them to make it your very own. Your happiness and financial independence is indeed in your own hands! Don’t worry if not all the rules make sense at first glance as you will slowly but surely learn all that you need to as you read the rest of the guides and articles on this site, and other personal finance sites.
1. Set Your Own PF Goals
Each one of us are uniquely and individually made. Likewise, you should have your own financial goals that are just for you. Key financial goals to consider include your definition of financial independence, paying for education costs or even shorter term goals like going on a holiday trip (or two) yearly.
For example, your goal may be “To be able to achieve financial independence with a comfortable lifestyle where my passive income covers all my expenses and makes sure I leave a legacy for my next generation and causes I care about.”
2. Review PF Monthly
Every month make it a goal to go through your income, expenses, assets and liabilities to know your net worth changes. Is your net worth growing? Are your financial ratios getting better or worse? Are you keeping to your budget and investing towards your planned goals?
If you are married (or engaged), it is a good habit to review your PF monthly together. If you have a financial planner, go through your review with your financial planner with a quarterly or half-yearly review.
3. Say No to Debt
Pay off all debt, especially high interest bad debts. If you are struggling with multiple debts, tackling the smallest first may work best or rolling all your debt into a single debt at a lower interest rate. In general, avoid taking up debt, especially high interest debt like credit card debt or personal loans.
Debt, if unchecked, will be a massive drain on your accumulation journey to financial independence. A simple example is that if you have investments generating you returns of 8% per annum (p.a.) but you’re paying interest on debt at 15% p.a. leaves you in a poorer position than if you paid off the debt first.
4. Fund Your Emergency Savings
The first thing to do before you even look at investing is to set up your emergency savings fund. This can be as low as 3 months equivalent of your expenses, will likely be recommended 6 months worth for most, or can be as high as 12 months if you need a larger safety buffer.
If you do not have emergency savings, you are very likely to fall into debt when the unexpected occurs. Not only then will you be digging yourself out of debt but you will also be facing high financial stress which may affect your mental and physical health.
5. Pay Yourself First
After paying off key necessities, save before spending money on things you don’t really need. Look at how you can automate the whole process to pay yourself first. And then even if you splurge and spend every single ringgit you have after that, you will still be ok.
In the guide on paying yourself first, you can learn in more detail about the concept of paying yourself first, how much to pay yourself, and how to pay yourself first.
6. Invest Intelligently
Start setting up your own investments with funds which you have now regularly set aside. Find an approach which works best for you and have a well-defined personal investment plan. Look at having a proper asset allocation strategy that allows you to benefit from diversification.
Know your circle of competency and avoid from being overly diversified. But don’t put everything into a single investment. Keep your investment plan simple. Have a balance between low-risk and high-risk investments.
7. Insure against Risk
Protect against potential losses especially for your life, home and vehicles. Avoid having a major medical illness, accident or even death derailing your financial plans affecting you and your loved ones.
Know what you need and that you are sufficiently protected (not under-insured or over-insured) at a fair price point. Know your options for protecting yourself. Keep your insurance and investments separate.
8. Get the Right Property
Live in a place that meets your needs and is within your means. Do not keep up with the Joneses and struggle to cope with crippling home loan payments. Know your credit score and debt service ratio which will affect your property loan application.
Don’t fall in love with your property (especially investment property). Avoid having too much of your investment assets in property. Consider alternatives such as renting or owning REITs (Real Estate Investment Trusts).
9. Live Life with Love
Spend sufficient time deliberating (or best discuss with your significant other) before making an investment decision or a large purchase. Avoid rushed decisions or being pressured into making a decision. A lot of times greed comes into the picture when you fall for a scam or “too good to be true” investment.
Spend on what’s important to you without being a miser. Drink that cup of latte every day if that’s what makes you happy. Life isn’t about scrimping every single cent every day. (Nor is it about splurging on everything, especially material possessions that don’t spark joy).
10. Reward Yourself
When you reach each of your financial goals, reward yourself and celebrate your achievements! Track your progress towards your financial independence with key milestones of your passive income funding 100% of your expenses and then 200% of your expenses.
When you have achieved financial independence, you gain freedom in every way to spend your time and resources as you desire while your wealth continues to grow.
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