4 Effective Personal Finance Rules
Everyone clearly understands the importance of effective personal financial management. However, what is the best method of money management to start with? Here are 4 suggestions for effective personal finance rules that you should apply.
I- How to manage your expenses and save more?
Spending management is the first thing that anyone needs to do to optimize their personal finances. Using money effectively and properly is especially important to your financial budget. Personal spending management is your optimal use of money for daily needs, necessities, entertainment, travel, illness.
How to manage your expenses and save more? / ph: pexels
Here are some proven and effective ways to manage your personal finances that you should try.
1- 6 jars rule
The principle of 6 jars created by Harv Eker will help you manage your most detailed spending. The method of managing each person's total income, divided into 6 jars that are appropriately proportioned and used for different purposes.
If your total income is 100% then 6 jars will be split with the ratio as follows.
- Jar 1 accounts for 55% to serve basic living needs such as housing, food, travel, and expenses.
- Jar 2 accounts for 10% of long-term savings. The saved money will be used for long-term goals in the future such as buying a house, buying a car, etc.
- Jar 3 is 10% of the amount to achieve financial freedom. The money will be used to invest to create profit and generate passive income. The goal of this amount is to help you increase your income, gradually reach your financial freedom without working too hard or to reach your goal of early retirement.
- Jar 4 accounts for 10% to serve the needs of enjoyment such as: travel, personal hobbies, free shopping...
- Jar 5 accounts for 10% for educational purposes to improve self-skills or to invest in your children's learning.
- Jar 6 accounts for 5% of the money which is used for the purpose of giving, supporting relatives and friends, people with more difficult circumstances,..
2- 50/20/30 rule
The 50/20/30 rule is the simplest and most intuitive solution for every person to effectively manage their spending. Your income will be divided into 3 main groups in which:
- Fixed and necessary expenses account for 50% of basic needs: housing, meals, tuition, medicine...
- The flexible expense group accounts for 30% of daily entertainment, travel and shopping needs.
- The savings and investment group accounts for 20%, a part of this amount is used to save, the rest is used to invest to generate passive income.
3- Kakeibo Notebook
The Japanese-style spending management method with Kakeibo notebook is highly appreciated to help you monitor the effective use of money. Kakeibo notebook is an effective tool for recording expenses, financial planning for the first days of the month which will determine the amount of money you want to save.
The notebook will help each person form a habit of summarizing spending and at the same time adjust their money habits. At the same time, the Kakeibo notebook will help you remember, create financial goals, ensure full implementation of the initial commitments.
II- Effective Personal financial investment channels
Financial investment is a solution to improve each person's income and living standard. You should not just work to create money, you should let your money to work to create itself. This is the key to achieving financial freedom.
Here are some attractive personal finance investment channels that you can use.
- Savings deposit is a familiar but effective channel. Savings at the bank will be profitable according to the bank interest rate according to periodic packages.
- Stocks are the most attractive financial investment channel today. Investing in securities has high liquidity, bringing big and sustainable profits to investors. However, to invest in securities, you need to learn and analyze the market to make appropriate trading decisions and to prevent market risks. For newbies who do not have much experience and time to learn, investing in fund certificates is an effective alternative.
- Gold is a traditional investment channel chosen by many people. Gold investment is stable, does not depreciate, but also needs knowledge of the market to seize profitable trading opportunities.
- Real estate offers investors many opportunities for great profits, but also many potential risks. Investors need to understand the market, legal issues however the amount of capital is not small. Investment in rental real estate is an effective channel, can be give you stable profits.
III- Personal financial management skills
The ability to control personal finances does not happen by accident, requiring each person to learn and practice skills to master money intelligently. To make financial problems no longer too complicated, you need to equip yourself with the following personal financial management skills.
- Spending management skills
The top important skill that anyone needs to practice and improve their shopping and consumption habits. A lot of people have problems with uncontrolled spending which cause many financial consequences, debts... To manage spending effectively, you need to have a spending plan, identify the necessary needs, say “No” to wasted expenses.
- Planning skills
The ability to plan will help you shape your finances, spend and use money effectively. Planning to spend for necessities but still ensure personal entertainment needs. At the same time, planning for the future helps us have specific financial goals to act on.
- Investment skills
This is the skill of each individual depending on the capacity and ability of each person. You can deposit savings, invest in fund certificates or invest in stocks, real estate...to generate a large passive income.
- Budget management skills
Ability to make statistics, evaluate and adjust smart personal financial management according to each case.
IV- Personal finance management principles
You have methods and formulas to manage personal finances, but if not following the principles will not bring results. The difference between successful and unsuccessful people is the principle of action. Here are the golden rules that you need to follow for effective personal finance management.
- Spend less than you earn
The top rule you need to follow to manage your personal finances. Determine the budget, income, adjust the appropriate spending level within the allowable budget. If you want to spend more you must earn more.
- Invest to make money
The second important rule is never leaves money idle. Money needs to work to make a profit to increase income.
- Pay for yourself first
This is a principle that helps you control spending, avoid unreasonable use of money, leading to unmet personal problems.
4 Effective Personal Finance Rules
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