The ‘Ten Commandments’, for those who do not know their Judeo-Christian mythology, were the laws to lead life by, handed down by God, who took the form of a burning bush to Moses on the summit of Mount Sinai. Perhaps the Ten Commandments of Personal Finance are not quite as dramatic or important, but will definitely stand you in good stead for a long time to come.
Here goes, then!
Make a savings plan – and stick to it
The importance of the savings plan is critical. As soon as you start to earn, it is time to plan how to save it. A ratio of 50:30:20 is recommended, where no more than 50% of your income should be spend on necessary expenses (Rent / Groceries / Bills), 30% on things that you want (Entertainment / Discretionary expenses) and 20% minimum on saving in the form of retirement funds and investments. But even if you can’t quite stick to this….
Spend less than you earn
It is understandable that making a saving plan is easier than sticking to it. No matter the circumstances, however, it is absolutely essential that you NEVER spend more than you earn except in real, genuine, unavoidable emergencies like medical exigencies. Any other expense that can be avoided, should be, rather than running up high-cost short-term debt. Which brings us to the next point…
Limit debt – and pay off what you have
In the long run, some amount of debt is unavoidable. We do need loans for buying a home, sometimes for starting a business or paying for higher education. Whatever it is, try to keep it low, paying from your savings as much as possible. If you want a car or a foreign holiday – pay for it from your savings as far as possible. These are things that do not gain in value, and taking on loans for them would be disastrous in the long term.
Pay your bills on time
This is plain, sound, common sense. Life is expensive enough without wasting money on pointless late fees. Make a calendar of due dates of all your bills – insurance, electricity, phones, internet and so on – and stick to it.
Teach your children about money
It is not just about you. One of the most important lessons you can give your children is to teach them about money. How to handle it, how to save it and where to spend it. Consider a part of your duty to your children to do this and they will thank you for it when they grow up.
Another factor that is very important. Buy yourself adequate coverage both for health and life. If you face an unfortunate medical event or worse, you would want it not to completely wreck your emergency funds and your family’s future. So get yourself insured and ensure that you have funds to meet all contingencies.
Plan for retirement
We live longer than ever – life expectancy is always on the rise. At the same time, the age of retirement has changed very little. We look at an ever-longer period of life after retirement. However, fewer companies offer reasonable pension plans. This makes it absolutely essential that every person has a substantial portion of their money set away for the purpose of using as a retirement fund.
Prepare a will
No matter how old you are or the shape of your health and wealth, if you have a wife or children or both, prepare a will. One day, death will come calling for each and every one of us, and a clear, equitable and well-drafted will makes sure that your family does not spend a long time locked in legal battles that might cost more than your legacy itself. Consult a lawyer as soon as possible and draw up a list of your assets and liabilities so that you can make a will and your heirs will thank you for it one day.
Do not invest in get-rich-quick schemes
This is something that bears repeating – there is no such thing as a get-rich-quick scheme that actually works. There is a way to get rich, and it involves working hard and investing wisely. Anything else is either illegal or a fraud. Ponzi schemes that promise to double your money in six months time and so on are pure wastes of money and you must stay away from these.
Keep your spouse involved in the financial process
No matter whether your spouse is financially savvy or not, it is his or her right and duty to be aware of the financial decisions you take that affect the family. So it is imperative that you, at regular intervals, update and apprise your spouse of the state of your finances and investments you may have made. After all, it is a family unit that you are a part of, not an isolated individual.
So there you go! The Ten Commandments for the modern age – those of personal finance! Follow them and prosper.