Three Simple Money Rules to Live By

Mix money with human emotions or confuse money with human identity and things get complicated quickly. Use these following rules to clarify your relationship with money and simplify your financial future.

Rule 1. Know what you make, know what you spend, spend less than you make.

Make a budget, period. Why? It makes you face up to your lifestyle and how you are treating money.

Know what both your equivalent hourly rate and annual salary are. Redo these calculation taking into account your commute time, transportation costs, training costs, clothing costs, etc. Is this what you are worth?

Know exactly where your money is going. What is your biggest expenditure each month. Try to see all your costs as being able to change. What are you actually getting for your money? Is that what you really want to pay for rent, services, entertainment, transportation? Are you proud of how you are spending your money?

Each month, do you choose to go further into debt or do you choose to grow your net worth?

Rule 2. Know why you spend money.

Be honest with yourself about your motivations for what you are buying. Be honest with yourself about what you choose to buy. Focus your spending on things you need to be happy and eliminate everything else.

Let's assume you are not an Olympic athlete and want to buy the latest running shoes.

• Do you need the new pair of running shoes because they have the newest technology? Ask yourself: "Is the technology really so different? Will it have any really effect on my performance? Will shaving x number of seconds off my time make me happy?"
• Do you need the new pair of running shoes because everyone else has them? Ask yourself: "Do I really need new shoes to keep my friends? Who do I need to surround myself with to make me happy?"
• Do you need the new pair of running shoes because no one else has them... yet? Ask yourself: "Do I really need the latest shoes to demonstrate my worth to others? Do material things add to my happiness?"
• Ask yourself: "Would a cheaper pair work just as well? Would my old shoes work fine for the exercise I do? Do I even have any use for running shoes at all?"

Rule 3. Don't spend money you don't have.

Are high interest payments something you have identified in your life to make you happy? Probably not. So, stop "buying" this interest and only use credit cards as convenience cards.

Instead, start putting monthly payments for your purchases into a savings account before you buy. It will take you longer to get the item, but you will appreciate it more because you will remember how much work you had to do to get it.

Use your budget to plan for your upcoming expenses and set aside money each month to ensure that you can pay for your insurance, winter tires, emergencies or retirement when the time comes.

Sometimes lower interest loans can be very helpful to buy big purchases like cars or houses. Before you take on any debt, make sure that you follow rule two and evaluate why you want to make the purchase. Car loans and mortgages are neither needs nor practical for everyone. Consider alternatives such as public transportation or renting. Also consider what else you could be doing with your down payment or monthly payments. Which use will make you the happiest?

I have used these rules in my own life. I have kept detailed records of my expenses and produced balanced budgets. I have eliminated all excess spending. I don't carry credit card debt. I decided to sell my car and I also decided to take out a mortgage. These rules were essential for me to make these decisions. They help you to tune into yourself and to identify what it is that you really want and how you want money to be a part of your life. Remember that everyone is different and everyone SHOULD want different things.