4 Money Rules 'Cash-Flow Pros' Follow That They're Not Bragging About
Most people think financial success comes from making more money, picking the best investments, taking on a side hustle or setting up passive income streams.
While these can help guide your path, real wealth is built by having the right system and financial habits in place. These habits create financial stability and help you live a less stressful life.
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Here are four money rules many financially responsible people follow that they might not be bragging about.
Live Off the Previous Month's Income
Making sure you live off your previous month’s income is a crucial money rule to live by, especially if your income fluctuates each month.
The idea is simple. Use May’s income to pay your bills in June. However, for most people living paycheck-to-paycheck, May’s income is used to pay May’s bills.
By planning ahead one month, you’re creating a cash buffer. This means you won’t be overdrawing your account, budgeting will be easier and you’ll remove yourself from the paycheck-to-paycheck lifestyle.
So how do you create this buffer? It can start small. Build a small cushion first with a portion of a paycheck. Then use things like bonus checks at work or tax refunds to increase the buffer.
“Most people spend as money comes in, linking their spending with the timing of paychecks and creating problems when something goes wrong,” said Cody Schuiteboer, president and CEO at Best Interest Financial. “True experts build their operating buffer of a month once in their lives and continue living off money received in a past period.”
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Know That What You Have Is Greater Than What You Want
If you talk to a group of financially stable people, they are likely to tell you the same thing. It’s OK to want certain things in life, but it’s also OK to be content with what you already have.
Lifestyle inflation is a real problem in America. When people start earning more, they use it as an excuse to spend more. While it’s fine to increase how much you budget for certain items, you should also budget more for how much you save and invest. Being content with what you have is not about deprivation. Instead, it’s about giving yourself peace and flexibility.
The difference between how much you earn and how much you spend can set you up financially in life and is much more powerful than the appearance you give to others.
“Let's accept the fact that all of the work and study that we put into our finances is actually about happiness or at least contentment,” said Matt Miller, certified financial planner and founder of Upleft. “The problem is that most advice revolves around grinding for more income so that you can have more. A true cash-flow expert, or someone good at math, can tell you that another way to solve the formula is to reduce the wants.”
Set a Discretionary Cap
Financially disciplined people set a maximum for how much they are willing to spend each month on discretionary items. By having this firm budget in place, they avoid overspending and unwanted situations.
The problem for most people is that they spend money freely at the beginning of the month and then save whatever is left. The reverse is how it should be done, though. Pay your bills and save first and then your discretionary spending has boundaries.
By doing this, you’re going to have fewer money surprises and less guilt at the end of the month.
“Pros don't let credit card payments fluctuate wildly,” said Jon-David Hague, founder of Bountisphere. “Instead, they put all discretionary spending on a single card with a hard monthly ceiling, say, $2,000 and create a matching 'Money Plan' item to pay that exact amount from their checking account.”
Pay Your Irregular Costs on a Fixed Monthly Schedule
Like many things in life, it’s important to plan ahead. If you’re a homeowner, you know you’ll have a property tax bill. Don’t wait for that bill to arrive and find yourself scrambling to cover it. Instead, treat it as a fixed monthly expense.
For example, if your property insurance bill is $4,000 every year, add a line item to your budget for $333.33. Doing so means you’ll have the money available when it’s due.
The same can be true for back-to-school shopping. If you have kids, you’ll be paying for school supplies and clothes every August. Budgeting a small flat amount each month is much easier to manage than spending $500 or more in August.
“There are many people who consider annual insurance premiums, property tax bills, car maintenance and the holiday season as unpredictable costs,” Schuiteboer said. “The experts calculate them for the whole year, divide by 12 and set aside this amount every month as if it were a bill. The critical point is that they do it automatically and as if it were mandatory rather than what remains after.”
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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