There’s been a lot of information going around about how to be smart with money, how to invest wisely, where to save and things like that. While there is a lot of good information out there, the foundation of smart money management is really very simple. There are just three laws you need to keep. Follow them to reduce your financial worries (and increase your savings!).
Ready? Here they are!
1. The Law of 10 Cents.
When you keep this law, you take 10 cents of every dollar you earn or receive and HIDE IT. You can hide it in your credit union savings or share certificate account, in your mattress, or in a hole in your backyard. It doesn’t matter. Get used to living on 90 percent of your income while 10 cents of every dollar gets put away. Some people call this “paying yourself first.” Whatever you call it, follow this rule and you will soon be on your way to building a very comfortable nest egg.
You might think that 10 cents on the dollar is not going to get you very far. But consider this: you can get used to living on 90 cents for every dollar you earn, and after 10 months, you will have a full month’s salary put away. Not bad, huh? In 10 years time, you can technically take a year off. What to do with that nest egg? We can talk about that another time. Meanwhile, the important starting point is to get used to keeping the Law of 10 Cents.
2. The Law of Organization.
Quick: How much money is in your share draft account right now? How about your savings account? How much do you owe on your credit card? If you don’t know, and if it would take you more than three minutes to find out, you’re not keeping a law that’s easily kept. According to the Law of Organization, you should develop a clear picture of what is where at all times and update it frequently.
Set up a system for tracking all your accounts. Quicken is a good one, but there are others too. It’ll take a few hours time to set it up, but once you’ve done it, regular maintenance shouldn’t be more than 20 minutes a week.
Think also of how much you can buy with the money saved on late fees, insufficient funds fees, and all the other expenses of not having your finances in order. The Law of Organization will help you avoid all that and more.
3. The Law of Enjoying the Wait.
It’s widely accepted that good things come to those who wait. If you must have things before you have the money for them earmarked, you’ve fallen prey to the great American debt machine. The Law of Enjoying the Waiting states that you pay, and pay well, for having things now. If you can wait until later, and put money away specifically for the purchases you have in mind, you will have outsmarted the debt monster. No debt.
How much do you pay to get things sooner? Look at your interest rate and figure it out. Debt isn’t cheap. Think of how many things you could have bought with that wasted money! When you realize how much smarter is it to buy things when you have the money on hand, you’ll actually begin to enjoy the wait.
FAQs
But despite all the advice, tips, ideas, and new digital tools to manage your personal finances, these three golden rules will never change.
- Golden Rule #1: Don't Spend More Than You Make. ...
- Golden Rule #2: Always Plan for the Future. ...
- Golden Rule #3: Help Your Money Grow. ...
- Your Banker as a Source of Money Management Advice.
The 50-30-20 rule involves splitting your after-tax income into three categories of spending: 50% goes to needs, 30% goes to wants, and 20% goes to savings.
What are the smart money rules? ›
Strive for a balance in your spending where you prioritize appreciating or long-term assets rather than depreciating ones. Focus more on your home and less on your car. Focus more on investments than impulse purchases.
What are the 3 basic steps in money management? ›
Understanding how to create a realistic budget, track your spending, and set attainable savings goals are essential steps in the process.
What are the 3 basic golden rules? ›
The three golden rules of accounting are:
- Debit the receiver, credit the giver.
- Debit what comes in, credit what goes out.
- Debit expenses and losses, credit incomes and gains.
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.
What is the $3000 rule? ›
Rule. The requirement that financial institutions verify and record the identity of each cash purchaser of money orders and bank, cashier's, and traveler's checks in excess of $3,000. 40 Recommendations A set of guidelines issued by the FATF to assist countries in the fight against money. laundering.
What is the 70 20 10 Rule money? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. It's an approach to budgeting that encourages setting aside 70% of your take-home pay for living expenses and discretionary purchases, 20% for savings and investments, and 10% for debt repayment or donations.
What is the 3X money rule? ›
Some personal finance experts call it the 3X emergency rule, wherein the emergency fund should be equivalent to 3 months of expenses.
What is the smart money technique? ›
The Smart Money Concept (SMC) is a trading strategy focused on understanding and leveraging the market movements initiated by institutional investors, such as banks and hedge funds. It posits that by identifying the trading behaviours of these major players, retail traders can make more informed decisions.
Rule of 114: To estimate when your money will triple, divide 114 by the annual interest rate. For an 8 per cent return, 114/8 = 14.25 years. Thus, your money will triple in about 14.25 years. Rule of 144: To determine when your money will quadruple, divide 144 by the annual interest rate.
What is the smart money theory? ›
Smart money refers to the capital that institutional investors, central banks, and other financial institutions or professionals control. Smart money is a collective force which has the ability to move markets. It is believed that smart money has a better chance of success than retail investors.
What are the 3 S's for financial planning? ›
The Three S's
- Saving. The methods for teaching money lessons have certainly changed. ...
- Spending. A budget is an important financial tool that can teach children how to manage money responsibly. ...
- Sharing.
The three essential components of financial management are:
- Reducing the finance cost (interest payments on loans or other expenses related to obtaining funds)
- Ensuring sufficient funds.
- Appropriate funds allocation.
M1 consists of coins and currency, checking accounts and traveler's checks. M2 is a more broad definition of money. M2 = M1 + small savings accounts, money market funds and small time deposits. M3 is even more broad and includes M2 + large time deposits, large money market funds and repurchase agreements.
What are the three 3 functions of money? ›
To summarize, money has taken many forms through the ages, but money consistently has three functions: store of value, unit of account, and medium of exchange.
What are the three principles of financial management? ›
measure financial performance, ensure unnecessary costs are being avoided, ensure that expenditures are reasonable and necessary to accomplish the unit's goals, and, transactions are adequately supported.
What is the 70 20 10 budget rule? ›
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.
