The Only 2 Financial Rules You Need Live By

There’s a lot of great advice out there (and on this very site) for saving money. But if it overwhelms you, start with just these two simple rules and you’ll be on your way to financial independence.

When it comes to the way we think about money, I’ve noticed there are two kinds of people: those who think $1,000 is a lot of money, and those who think $10 is a lot of money.

I fall into the second category. But I’m not especially frugal. I have a fairly nice car, I take a vacation every year, and it isn’t too hard to convince me to drop a few hundred dollars on a great pair of shoes now and then. I’ve never even clipped a coupon. But I’ve also maxed out my retirement savings, bought a house, and live without debt – all on an average salary for where I live.

What I’ve done isn’t extraordinary, but it does seem somewhat rare. That said, I think most people can accomplish this fairly easily. All you have to do is live and die by two simple rules…

1. Pay yourself first: the best kind of cliche

“Pay yourself first” is a very common piece of financial advice. It’s simple enough to follow, but that doesn’t make it easy.

If you can save $200 per month at a 6-percent interest rate, you’ll have more than $200,000 in 30 years. At the very least, you’ll have a great savings fund at the ready for whatever life may bring. But how can you come up with that cash when you barely have any money left between paychecks?

The answer is to take that money off the top. And yes, it’ll sting a bit at first.

I’ve made a habit of taking contributions to my retirement and savings account right off the top of each paycheck on the very day it hits my bank account. I try to cut pretty deep too, leaving myself just a little more than I need to pay for expenses.

This works on two levels: It forces me to really budget to meet my basic expenses while keeping extra cash out of easy reach. I can still retrieve the money from my savings account if I happen to need it, but because I have to make a decision to transfer funds, they usually stay put. I allow myself to spend whatever I don’t need for expenses on whatever I like – if I don’t spend it by the time my next paycheck comes, I roll that into savings too.

I also save any additional money I get. I think a raise, tax return, or bonus can go two ways. It can raise your standard of living, or it can raise your standards. Rather than creating more expenses to suck up these extra dollars, I live the same way day to day and tuck the extra money away for something better.

2. Practice mindful spending

Having some leeway in your paycheck isn’t a given, but I think many people have more wiggle room than they realize.

This is what I mean when I say that I think $10 is a lot of money. When I decide to buy something, it’s a decision, not an impulse buy. I want to spend my money on things that really have value for me, not just things that are convenient or appealing at the moment. So while I can buy something nice once in a while – without guilt – I have a hard time going out for lunch or buying (you guessed it) a latte.

Less expensive purchases are an easy mental hurdle to get over because they’re so small it seems that they could hardly amount to anything. The truth is, these seemingly insignificant purchases can easily amount to, or exceed, that $200 you may be aiming to save.

If you spend $4 every morning on a latte, and $12 each work day for lunch, this adds up to $80 per week – for a grand total of $4,160 per year. If you earn $50,000 per year, that’s a full month of your salary. Do you really want all that money to amount to a bunch of coffee and Subway sandwiches?

This isn’t to say that no one should ever buy a latte. But if I spend this kind of money every week, I don’t have anything to devote to my savings. That’s a sign that these seemingly small indulgences just aren’t affordable, at least for me.

This is why I’ve also decided not to opt for cable TV or an extensive cell phone plan. I don’t feel that I live like a pauper. After all, I have money saved that I can turn to not only in an emergency, but also to pay for things that I feel really add enjoyment to my life, rather than just distracting me for a few hours or days – and steadily subtracting dollars from my bank account.

What are your rules?

Over time, I’ve learned to save money as diligently as I pay my bills. I also try to spend what’s left as mindfully as I can. I can’t say I always succeed, that I never overspend or that I’m not often tempted to break my rules.

Nevertheless, I’m sticking to the strategy that has kept me out of debt, and helped me save enough to meet some key financial goals – and still have some fun. I know of other people who’ve done even better by employing these rules much more stringently than I do. As for me, I’ll keep saving up for my next big purchase by keeping all the little ones in check.

Stacy Johnson

It's not the usual blah, blah, blah

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  • Just imagine the change that could occur if families started teaching these two basic concepts to kids as soon as they earned their first $1 or got their first allowance!

  • Roger Lauck

    I was teaching a personal finance course to some Senior High aged young people, and the two principles I tried to get across were “Spend Intentionally”, and “Save Consistently”.  I explained that they would save themselves from a lot of the financial pain people are experiencing these days if they just followed these principles starting now.

  • Anonymous

    It is so important that you are happy with your own financial rules otherwise they will be impossible to stick to.  By thinking about what you are earning, what you are spending and what you want to achieve you cannot go too wrong.

  • “If you can save $200 per month at a 6-percent interest rate, you’ll have more than $200,000 in 30 years.”
    Where can you find 6% interest on savings?

    Also, try this.
    Save $1000 dollars.
    Since you’ve done it once, do the same thing 9 more times.
    Now you have $10,000 dollars.
    With $10,000, you can do just about anything.

  • D

    I too am interested in finding a 6 percent interest rate as well.  I found an ad next to the post of this article on Yahoo today…help Tara, where is this 6 percent return???Savings TypeTodayLast Week6 month CD0.50%0.51%1 year CD0.78%0.78%3 year CD1.11%1.11%MMA0.54%0.54%$10K MMA0.63%0.63%$25K MMA0.79%0.79%
    The ad appeared on:

  • Pay myself first! OK. I’ll tell my ex-wife and my children that I am going to pay myself first. If she has any questions I’ll have her get in contact with you. I am (under)employed at the moment; I’m selling women’s shoes at Macy’s on commission. Commission work=no work, no pay. Last week’s illness shortned net take home pay after my automatic distributions(see above) was a grand total of $70.62. That’s right 70 bucks. In what bank account should I stash that?

    I have 2 degrees and am currently working on another, I was, up until several years ago, doing IT consulting work, but now I am a youngish, over-the-hill, working stiff.  I did “Spend Intentionally”, and I did “Save Consistently”. But, alas, life happens and I have used up all of my savings and most of my favors. Please let me know “The Only 2 Financial Rules You Need Live By” for folks like me. And believe me, there are a LOT of people out here in my shoes.

  • My parents would say pay the TITHE first!  [It’s Biblical–in Malachi–and “Give to God that which is God’s and to Ceasar that which is Ceaser’s.”]  Even decades after paying for four of their five children to finish college, they still left a sizeable inheritance.    My mom and dad seldom if ever had any financial problems or worries because my dad paid 10% of his money to church, plus extras the church needed, and gave money to missions, charities, and helped other people.   Still managing to save/leave quite a bit of money!    They did without a lot of material things for themselves and a “fancy house” or “new car,” and scrimped, saved and invested, and their overriding attitude:  What is spiritual is more important than $$$.   [All that, yet they also “did without” as children/teens while growing up poor in large families during the Great Depression!   No wonder my parents and others were “The Greatest Generation.”] True, saving money (if possible) is one of the keys, but “paying youself first” has a selfish, carpe diem ring to it.   If that had been my parents’ way of handling their finances, my sibs and I probably couldn’t have gotten college degrees and there would be nothing left to us children in an inheritance.  Most everybody else will see this post as containing “old-fashioned” or “out-of-date” ideas, but giving to the church and to help others less fortunate is a sure method to financial “success”–it may not mean having millions showered down upon us–but we will be blessed one way or the other:  Sometimes it’s only spiritual in nature; it doesn’t mean we’ll “get back” in equal or higher amounts of what we give, but the auto or doctor bill may end up being less than what we had anticipated; or we will receive a desperately needed (and totally unexpected) $20-50-100 here and there.   What my parents did (and left for their five children) both humbles and saddens me.  It also makes me proud of them!  They followed what the BIBLE says about finances, and it “paid off” in dividends!  If only I would follow their Godly examples.  Yet what they gave to the church, to others and charitable causes was out of purity of heart and compassion–not based on what THEY could “get” out of it :).  It’s really true:  “It’s more blessed to give than to receive.”  There’s my sermon!

  • Marigolds2010

    Where on earth can you find a 6% interest rate?

    • S.O.M.

      Maybe, dividend stocks – NO THANK YOU!

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