There are three golden rules of sound finances. Following these rules will ensure that you will be able to maintain a healthy financial status for life. They are not exactly easy to do but there is absolutely no question that they can be done.
Image Source: flickr.com/photos/Imagesofmoney
Income Minus Savings Equals Expense
You read it right. Savings comes first before anything else if you want to have something to look forward to in the future. This simply boils down to the simple mathematics that you need to set aside a specific amount for savings and whatever amount remains will be distributed to pay for needs and some wants if there is still some to spare.
We will never run out of things to pay for. This is the very reason why the formula is not the other way around. If we put our expenses first, chances are there will be nothing left to save.
Money Outflow Should Never Be More Than Money Inflow
This need not even be made into a rule. It is based on common sense that we do not spend more than we earn. However, there are some things that we feel cannot wait and that is where we should tread carefully.
If having to resort to credit will result to more benefits without risking financial ruin, then that could be an exception. Paying the mortgage to own a home makes perfect sense more than renting for the same amount. This is especially so if you foresee yourself and your family staying in one place for a long time. Prudent investments team up with savings to provide a fairly comfortable life to people in the future.
Never Waste Even in Times of Great Abundance
Abundance in life is a good thing. It is the privilege of having more than enough for one’s self which makes it possible to put resources to better use or even in helping others. Wastage is a sacrilege to this privilege.
Financial status in life may change at the wink of eye when people are not careful. That is why it is very important to always save a certain amount for the rainy day. When facing severe financial challenges, it is best not to lose control and find the best solution available.
I am no stranger to hard times. I’ve been through a lot and in all possible natures including finances. The one thing I’ve learned about going through all of them is the fact that we cannot solve a financial problem by creating another such as taking out credit to pay for another amount borrowed. The road to sound finances may be rocky but we can do it by avoiding obvious risks and learning our lessons well along the way as guided by the golden rules of sound finances.