Financial Health Rules: What They Are And How They Work

(Source: https://www.pexels.com/photo/person-counting-cash-money-4475524/)

Some things make sense across the board. If you want to get yourself in a financially healthy situation, then it doesn’t matter whether you’re trying to pay a mortgage or saving to buy some luxury items, if you follow the rules, you will get there. Strong finances are based on some consistent principles that, once you know what you are and you get used to them, you can follow. Here are what they are and how they work. 

Track And Plan

When it comes to getting into good financial health, it helps if you have a plan and can track where your money is going. For instance, you could work out what the non-negotiables are - such as your rent or mortgage, food, and household bills - and, once you’ve got the money for that, you can work out what you’re going to do. One potential way to do that is to operate what’s called zero-based budgeting. Here, every dollar you make has a job. Some of it will be on the essentials, while some could be for saving or debt repayment, while the rest could be for things you want but aren’t essential. The idea is that the money coming in minus money going out is zero - but, as has been explained, that doesn’t mean that you are just spending everything that comes in. 

You could also work with something called reverse budgeting. Here, you allocate money for savings or repayments first, then you move on to the essentials, leaving you, at least in theory, with money left over for things like dining, travel, and hobbies like going to the cinema, playing online video games or even playing online poker at the sites you can find when you visit Cardplayer.com. 

Either way, you should track your income and expenditure for a couple of months at first, just to get used to it. Then, you can see if there are any patterns that you can either build on or cut out, depending on whether or not they are helpful. And if you change your way of thinking, so the money you’ve got left over is something that you can spend, that means that, once you are into the habit, it will become enjoyable. Some months you might find yourself with even more to spare, and you can enjoy extra spending on your hobbies, or perhaps your poker game turned out well and you made some extra cash from a win. 

Money In>Money Out

Perhaps the most important, or maybe the most obvious, financial rule to follow is to spend less than you earn. The great novelist Charles Dickens’ character Mr Micawber put it best when he said: “Annual income twenty pounds, annual expenditure nineteen pounds and six. Result Happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six. Result misery.” If you are able to earn more than you spend on a consistent basis - in other words, you follow the Micawber Principle - you give yourself a bit of wriggle room. What you do with that is up to you. You could repay any debts you have, you could save the money, or you could buy something nice. It doesn’t matter, really, because by putting out less than you take in, you’ve made yourself some money. Not only that, though, but you’ve also given yourself a bit of peace of mind, so you won’t end up living paycheck to paycheck.

As for how you do this, the best way is to start small and adopt a somewhat frugal mindset. You could, for example, have a rule of thumb, where 50 per cent of your money goes towards things you need, 30 per cent to things you want, and 20 per cent to savings or debt repayments. Remember, too, that savings can add up. Putting aside $20 a week might not sound like much, but over the course of a year, that comes to more than $1,000. 

Keep It Long-term

Financial health is a long-term goal. After all, there’s not really much point in getting to a good place one month only to fall back into bad habits the next. Indeed, a report by the Financial Health Network found that less than half of the American population spent less than they made in 2023, which suggests that, if you want to get into good shape financially, you are not alone. And getting there is, very often, a matter of perspective. If you can get into a long-term state of mind, then you can see how, for instance, forgoing a luxury today can help you out along the line. After all, building wealth is a slow process, so don’t get too disheartened if you don’t see big results immediately. Also, it is worth pointing out that thinking long-term can help you avoid panicking. Both people’s personal situations and the overall economy change over time, so being able to think about the future means that you won’t overreact if there is a bit of short-term financial turbulence. 

If you want to get into long-term thinking, you can remember that compounding works, so it’s good to start as soon as you can. Likewise, if you can put some money aside for retirement, then do that, because you’ll end up being grateful for it. 

Why It Works

So, those are some simple rules to follow. But why do they work? One of the reasons is that they are all, in their own way, pretty straightforward. This means that you have some clear guidelines that are both easy to remember and easy to apply. That’s true no matter where you are, whether you are working for the minimum wage or running a billion-dollar corporation, because they are, basically, scalable. And because the rules are easily applied and scalable, that means that it’s less likely you will make mistakes, because they act as de facto guardrails, which help prevent people who follow them from falling into financial traps. Likewise, because habits take a little time to become reinforced, being able to do the same thing day in, day out, can become both enjoyable and second nature. Finally, keeping to the rules can help you stay resilient. This is because if you stick to the principles, then you can help protect yourself if things go wrong. Job losses or economic downturns will have less of an impact on you, because you know what you are doing and you are building up your financial health.