5 simple money rules you're probably ignoring—but shouldn't
What's the story
Managing personal finances can be a daunting task, especially with the dozens of advice floating around.
But, in the pursuit of financial health, some basic dos and don'ts are often ignored.
These simple yet effective strategies can make all the difference in one's financial journey.
Here are some often-ignored aspects that can improve your financial health without making you go nuts over complex strategies/jargon.
Safety net
Prioritize emergency savings
Building an emergency fund is key to being financially stable.
Most people tend to skip this step, concentrating on investments or debt repayment.
An emergency fund serves as a safety net during unexpected situations such as medical emergencies or layoffs.
Aim to save at least three to six months' worth of living expenses in a readily accessible account.
This way, unexpected events won't derail your long-term goals.
Spending habits
Avoid lifestyle inflation
Lifestyle inflation is when more money leads to more spending instead of saving/investing more.
It is a trap that's easy to fall into as earnings grow over time.
To keep your finances healthy, avoid the temptation of upgrading your lifestyle with every pay raise.
Instead, devote some of your earnings increase to savings/investments, and keep your spending habits intact.
Goal assessment
Regularly review financial goals
Regularly reviewing and adjusting your financial goals is crucial to staying on track with your objectives.
Life circumstances change, and so should your goals and strategies.
Dedicate some time every year to assess progress toward short-term and long-term goals like retirement savings or buying a home.
Adjust plans accordingly based on changes in income, expenses, or priorities.
Debt management
Limit high-interest debt
High-interest debt can snowball quickly if you don't deal with it immediately.
Pay off those debts charging high-interest rates, like credit card balances, before you tackle other financial goals like investing or vacation savings.
Paying off high-interest debt means you have more money to put in savings/investments over the years, and you would have better credit health.
Investment strategy
Diversify investment portfolio
Diversification is key to investing wisely. However, many investors tend to forget it.
They focus too much on a single type of asset class, say stocks alone. This increases risk exposure exponentially if the market turns unfavorable.
One day, this can lead to huge losses. Instead, think about investing across various asset classes.
These include bonds, real estate, mutual funds, etc. Thereby, reducing risk exposure and ensuring better returns in the long run.