3 Essential Rules of Personal Finance

Every so often timeless principles pop up out of nowhere. Well, seemingly nowhere. As you become more interested in the topic of personal finance, key concepts tent to sift to the top. I’ve been advocating these three rules of personal finance because they have worked in practice, not just theory. Let’s revisit some of these classic rules of personal finance, shall we?

Essential Rules to Implement

Before you get started, you must remember to actually do what is taught here. Simply reading these rules will do nothing. You have to implement your strategy in order to be successful. For many of you this will be review. But sometimes we need to go back to the basics, don’t we?

Each and every one of these rules is important. Combine all three, and you’ll be well prepared to take on just about any financial challenge that comes your way.

1. Live on less than you make.

This one is talked about so often, that sometimes it feels a bit cliche to say. But it’s so true. Let’s start by figuring out what this rule doesn’t mean:

  • It doesn’t mean to go into debt and have monthly payments less than your monthly income. When you are going into debt, you are spending money. Period. By taking out any type of loan, if you couldn’t pay for it in cash in the first place, you are officially living on more than you make. I know this is hard for some of you to hear, and don’t worry, I understand. I have a mortgage, but I’m working toward the goal of paying it down way faster than normal. By taking out the mortgage, I wasn’t living on less than I made. But I’m turning that around, how about you (I should mention certain mortgages are acceptable, mine was a bit risky)?
  • It doesn’t mean poverty or starvation. Many people think that if they live on less than they made, they would starve to death. I’d be willing to bet this is just an excuse for many people. By raising one’s income, living on less than they make would become very simple – they just have to have the ambition to move forward.

2. Make and keep a budget.

The budget is what pulls everything together. When you’re making a budget, you’re agreeing with yourself (and your spouse if you have one) that you will only spend a certain amount of money, and not go over.

I highly recommend you learn how to this month’s income next month. This allows you to see exactly how much money you can spend – exactly the amount you’ve made. This is part of a healthy zero-based budgeting system. The other advantage to this method is that it gives you a small emergency fund automatically (if something goes wrong, you’ll have a great deal of money in your checking account you could temporarily use).

After a couple of years of intense budgeting, I’ve found the best way to budget is to input receipts and transactions into your budgeting software (or write them down on paper) and then reconcile all your transactions with your bank accounts at least once a week.

By the way, if you need some budget category ideas to start you out, try my Budget Category Brainstormer – a printable list of over 80 categories and spaces for you to brainstorm your own!

3. Strive toward specific long term financial goals.

It doesn’t end with making a budget. You want to make sure you funnel your money toward specific long term financial goals. You could work on paying off debt, building your emergency fund, or saving for that house you’ve always dreamed of. Whatever your goals, just make sure you have some!

Budgeting is much easier when you know why you’re budgeting. You’re budgeting because you not only want to survive, but you want to thrive. You’re budgeting because you know that a dollar saved today will result in many dollars down the road through investments. Keep your motivation in your mind. Don’t forget it. You might even want to write it down.

So there you have it. These are some of the top ways you can be successful with money. Ready? Set? Get started!

What are some other essential rules of personal finance you think are worthy of mentioning? Meet us in the comments! We’d love to read your thoughts!

Photo by borman818

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  1. cashflowmantra

    I have done a pretty good job of number 3 by setting aside for retirement but less well with numbers one and two. I definitely need to do a better job and certainly plan on doing so. Blogs like this one have helped to encourage me and increase my resolve.

  2. Darren


    Love the point you made about debt payments that are less than your monthly income.

    People think they’re staying within their means, and technically it’s true. But interest payments should be avoided if at all possible.

    Those payments could be invested towards our financial freedom.

  3. katie

    Re How to Spend this Months Income Next Month, if I understand ccorrectly…

    JUNE Have 2-months salary, 1-saved, 1-paid
    JULY Use “1-saved” to pay expenses, “1-paid” is then saved, repeat 🙂

    Please clarify, I’m very interested in this practice, thank you!!!

    • John Frainee

      Katie, I believe you got it exactly! Great job! 😀

  4. katie

    This is a prayer answered, I can pay bills once a month and be done with it! Wonderful, thank you, again 🙂

  5. MortgagesByMark

    Good post! Budgeting and living on less than you make – as well as any other thing that requires some sacrifice now – can be tough, so it’s important to have a strong “why”. It’s the “why” of what you’re doing that carries you through when things get challenging.