3 Money Rules I Follow To Avoid Going Broke Again
I stole these money lessons from financially successful people around me
There is a difference between being poor and being broke. The broke is temporary. Poor is eternal.
— Robert Kiyosaki
I know what it feels like to get broke — you have nothing left to spend and constantly worry about where the next meal will come from.
I never thought I’d be the person who would go broke. I was always the smart one who understood money very well.
But somehow, I found myself in debt and struggling to make ends meet.
I was 27 years old and $40,000 in debt when I finally woke up to the fact that I lacked serious money management skills.
It took me a long time to dig myself out of that hole.
But along the way, I stole some valuable money lessons from financially successful people around me — my friends, colleagues, bosses, and smart guys on the internet. It helped me handle my finances without any expertise and never get broke again.
The single most important factor to getting rich is getting started, not being the smartest person in the room.
— Ramit Sethi
First, I swore that I would never let myself go through that again — and so far, I’ve been able to stick to my promise.
If you’re reading this, then you may want to avoid a similar situation. Or maybe you just want to get better with your money. Either way, these are the 3 rules that helped me get my finances back on track. I am sure they’ll do the same for you.
1. The 50:30:20 Rule
Most people who go broke have one problem — No liquid cash.
Liquid cash is important because it gives you the freedom to make decisions.
When you have assets that can quickly turn into cash, you also don’t have to worry about borrowing money. Also, you don’t need to owe anyone anything. You can use liquid cash to cover unexpected costs, invest in yourself, or save for a rainy day.
So, to avoid going broke, convert your investments into assets that can quickly be turned into cash without impacting their value.
Some examples of liquid cash include:
❇️Exchange-traded funds (ETFs)
❇️Money in your savings account
If you invest $464 in a good mutual fund every month from age thirty to age seventy, you’ll end up with more than $5 million.
— Dave Ramsey
But the only way to have liquid cash is to live below your means. This ancient money advice is gold because of two reasons:
It eliminates the possibility of overspending.
Prevents the accumulation of debt.
When you live below your means, you have a chance to invest.
Here’s what you can do:
The 50/30/20 budget ratio:
50% of your income goes to essential expenses/needs: Rent, insurances, bills, groceries, etc
30% of your income goes to wants: Dining out, gym memberships, recreational activities,
20% of your income goes to savings & debt payments
This budgeting ratio helps you avoid going broke and get better with your finances because:
It allows you to break down your expenses into three categories: essentials, wants, and savings/debt payments.
You can keep track of your income and expenditure in the clearest way.
You don’t get tempted to exceed your spending limit. (Discussed below)
2. Kill Your Buying Impulses
I used to be the type of person who would buy anything that caught my eye, regardless of whether I needed it or not.
This habit led me to go broke in my 20s until I eventually learned how to kill my buying impulses.
Resisting buying temptations makes your mind chaotic. But I learned how to kill my impulses without fighting my mind with these below-mentioned strategies.
Here’s what you can do:
✅Try waiting a week or two before buying to see if the urge still persists. Chances are, if you can live without it for a little while, you don’t really need it at all.
✅Another way to kill your buying impulses is to think about the consequences of buying them. Will this purchase make me happy in the long run? Or will I regret it later on?
✅If you can’t afford something, don’t buy it. Plain and simple. Just because you want something doesn’t mean you can afford it.
✅Always have a plan. Know exactly what you will do with the thing you’re about to buy before you buy it. This will curb your impulses and ensure you’re not buying things on a whim.
✅Don’t indulge in window shopping. My psychologist friend once told me, “When you touch items, you’re tempted to buy them.”
✅Create (and stick to) a budget. (Already discussed above)
✅Pay before you get paid. (Discussed below)
If you can learn to resist buying things on a whim, your bank account and future self will thank you.
3. Pay Before You Get Paid
Setting up deductions with your employer/bank is an underrated money-saving tip.
When I automated my deductions before I received my pay, I could feel the money I had. Settling the dues, saving for the future, investing before you spend — all fall under this umbrella.
Here’s what you can do:
🟣Have money automatically transferred from your checking account to your savings account.
This way, you’re not tempted to spend the money in your checking account, and you’re building up your savings at the same time!
This tip is called “Pay yourself first.”
This means you should always allocate a fixed percentage of your income to savings, investments, or retirement.
Even if it’s just $20 per week, ensure you’re automatically transferring this money into an account where it will grow over time. This way, you’ll have some funds saved up in case of an emergency.
It’s easy to get caught up in the moment and spend money you don’t have.
But, if you want to ensure that doesn’t happen again, these three simple rules for money management will empower you to live a debt-free life.
With money — better safe than sorry!
Rather go to bed supperless, than rising in debt.
— Benjamin Franklin
CONTRIBUTED BY Darshak Rana
READ ALSO: 15 bad habits that can make you poor