There are “lots” of tips and tricks to improve your financial well-being and there are few that mean the real business. Here are four personal finance rules in particular that are extremely important to your financial health, both now and in the future.
Avoid Credit Card Debt- In Most Cases
Most people realize that credit card debt is a form of “bad debt,” but they carry it anyway. About 46% of U.S. households carry credit card debt, and among those that do, the average balance is $15,654, according to personal finance website NerdWallet.
A typical personal finance rule is to duck credit card debt at all costs. It’s typically better to finance something with a personal loan, home equity loan, or even a 401(k) loan than it is to pay double-digit credit card interest rates.
Save and Invest at least 10% of what you earn for retirement
One of the most common questions is “How much should I be putting in my 401(k)?” The short answer — 10% of your income is a good target.
This may seem like a lot, especially if you’re contributing, say, 5% now. However, you don’t need to get there right away. Try increasing your contribution rate by 1% per year until you get to 10%. Or try increasing your contribution rate whenever you get a raise.
Contribute to an Emergency Fund
It’s tough to overemphasize the importance of having a retirement fund. A recent Bankrate.com report found that 61% of Americans would be unable to cover a $1,000 emergency expense from their savings.
Experts generally suggest that an ideal emergency fund has six months’ worth of your living expenses in a readily accessible account, but this can be a lot of money. Don’t be discouraged.
Live below your means
Many people believe that if they don’t spend more than they make, they’ll end up in good financial shape. I emphasize on going a step further and making a conscious effort to spend less than you make, even after accounting for savings.
In other words, don’t buy a more expensive car just because you can afford it if a less-expensive model suits your needs and your taste just fine.
Just a starting point
Of course, these aren’t the only personal finance rules you should keep in mind, but they are certainly some of the most important ones. If you avoid credit card debt, save 10% of your income for retirement, maintain a substantial emergency fund, and live below your means, you’ll be on your way to financial independence.
Also read the future of ATM