Money Basics: Three Golden Rules of money management (2024)

FAQs

Money Basics: Three Golden Rules of money management? ›

Understanding how to create a realistic budget, track your spending, and set attainable savings goals are essential steps in the process. It can be overwhelming to take on all these tasks at once, but when broken down into smaller steps, money management success is achievable.

Understanding how to create a realistic budget, track your spending, and set attainable savings goals are essential steps in the process. It can be overwhelming to take on all these tasks at once, but when broken down into smaller steps, money management success is achievable.

Golden Rule #1: Don't spend more than you earn

If you always spend less than you earn, your finances will always be in good shape.

Rule 1: Plan Your Future. Rule 2: Set Financial Goals. Rule 3: Save Your Money.

Money functions as a medium of exchange, allowing individuals to trade goods and services with one another. It also serves as a store of value, allowing people to save wealth over time. Lastly, it functions as a unit of value, enabling people to compare the worth of different items. Created by Grant Sanderson.

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

Spend Less and Save More

However, it is the key to your financial success. Though it is boring, only by spending less and saving will help you through your wealth management process. To create wealth, you need to have surplus funds to invest. Simply exhausting your income and not saving is not going to make you rich.

The Golden Rule is the principle of treating others as one would want to be treated by them. It is sometimes called an ethics of reciprocity, meaning that you should reciprocate to others how you would like them to treat you (not necessarily how they actually treat you).

What is the smart money management rule? ›

50/30/20 rule: Under this rule, you allocate 50% of income to needs, 30% to wants, and 20% to savings and debt repayment. Pay yourself first: This rule is all about finding the easy way to save. Every month, save some of your income first, then work on paying your expenses.

1 – Create a budget and save regularly

Establish a budget that outlines your income, expenses, and savings goals. Stick to this plan and track your spending to ensure you're living within your means. Make saving a priority by setting aside a portion of your income each month.

The 50-30-20 rule is intended to help individuals manage their after-tax income, primarily to have funds on hand for emergencies and savings for retirement. Every household should prioritize creating an emergency fund in case of job losses, unexpected medical expenses, or any other unforeseen monetary cost.

The 5% rule says as an investor, you should not invest more than 5% of your total portfolio in any one option alone. This simple technique will ensure you have a balanced portfolio.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

The rule targets 50% of your after-tax income toward necessities, 30% toward things you don't need—but make life a little nicer—and the final 20% toward paying down debt and/or adding to your savings.