I was recently rereading “The Psychology of Money” by Morgan Housel, and he mentions something very real: Financial decisions are not made on a spreadsheet, they are made at the table where you eat. Big financial decisions are made by talking, they are made at the moment we decide to do something with our money.

This is why we must have certain easy-to-remember rules that help us in those moments when we are going to make a financial decision.

5 Financial Rules To Improve Your Finances

1: The 3 Day Rule

This rule establishes that every time you want to buy a new item that was not in your plans, you wait at least 3 days before doing so. Because? Well, this will help you avoid making impulse purchases. Maybe you’re walking in a shopping center and you see some item of clothing, television, or even a car that makes you want to buy. However, it could be that you don’t need it and it’s just a spur of the moment that can affect your financial.

In most cases, after 3 days you won’t even remember what you wanted to buy. But if the opposite happens and the feeling is still there, perhaps it is because you want it and you could decide to buy it… as long as it falls within certain parameters that we can define with the following rule.

2: The 4x Rule ^ 2

Simply put, this rule defines that we should only buy those things that are our priority and that we could pay for twice.

Let’s say 3 days have passed and we still want to buy a certain item. In that case, the next step would be to filter if it is among our 2 or 3 priorities on which we would like to be able to spend without regret. Of course, at the same time, this makes us more aware of NOT spending on those things that are not a priority for us.

For example, if I decide that my two priorities are traveling and spending time with my family, then the next time I am tempted to spend on a cell phone or a television, I will know that I shouldn’t. But also, even if an item is a priority for you, you should make sure you can pay for it twice.

This way, once you make the purchase, you will be able to allocate the same amount to your investments and thus you will be growing your portfolio at the same time that you can enjoy your money in what is most important to you. Let’s say it’s a trip with my family that will cost $50,000, then I should have a total of $100,000 to be able to do it, or failing that, look for a trip that costs me $25,000.

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3: The 50% Rule

This rule defines that we must save 50% of all future increases we have. This way, even if today we are saving $0 a month, starting with our next increase it will be very easy to increase that amount while we can spend a little more! Let’s say I have a floor of $15,000 and right now I’m not saving anything…but they’re going to give me a raise of $2,000. At that point, I will be able to start saving $1,000 a month, and I will be able to spend $16,000 on whatever I want/need.

The goal is to do it with every increase you have, and this way you will always be increasing your savings while enjoying a part of the extra financial you earn.

You could take this rule into account so that it is only the percentage of your increase after subtracting inflation. Because, for example, if this year they gave you a 10% increase but inflation was 10%… then your economic power did not grow.

4: The Rule of 110

Just like the previous one, this may not be a rule that we would use every day, but it is very useful to know quickly and easily how you could be investing your money.

The way it works is that you must subtract your age from 110, to know what percentage you should be investing in stocks and how much in government debt or another safe instrument. For example, if I am 30 years old then it would be 110-30=80. 80% of my portfolio should be invested in stocks, while only 20% in government debt.

And it should be emphasized that when I say investing in stocks, I do not mean investing in individual stocks. My recommendation is that you invest through indices, which invest at the same time in dozens or hundreds of shares, and in this way, you considerably reduce the risk. If one of those companies does poorly, it wouldn’t affect you too much because it is a very small part of your portfolio.

Historically, one of the best indices to invest in has been the S&P 500, which invests in the 500 largest companies in the United States. In Mexico, you can invest in it if you buy VOO, which charges a commission of only 0.03%.

It is important to keep in mind that this is for long-term financial investing. Do not invest in stocks if you are not going to be able to keep them there for at least 7 years. On the other hand, to invest in government debt from Mexico you can do it through cetesdirecto, and buy BONDS for 3, 5, 10, 20, or up to 30 years.

Keep in mind that this is just a quick and easy starting point, but it can be adapted according to the risk that each person wants to take.

5: The 5% Rule

This rule defines that up to 5% of our portfolio can be allocated to any investment that comes to mind. And it is very useful especially when we like to be informed in the world of investments and perhaps we saw that a certain company or such an asset has been growing a lot lately. Instead of making the mistake of falling into FOMO, selling our portfolio, and investing all our money in that “opportunity”, it is better to only invest up to 5% to remove the temptation.

If the investment continues to do well, perfect, we are already taking advantage of it with a part of our portfolio, but if it does poorly, it doesn’t matter because it is a small part. Cryptocurrencies, Artificial Intelligence, a certain stock that has risen a lot in price… you have the freedom to invest in whatever you want.

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These types of rules are phenomenal because they take all the weight off of having to make financial decisions on the spot. Keep them in mind, and believe me, you will save yourself a lot of headaches, and your financial will improve almost automatically.

By admin

Hi, I blog post writer. I am found of writing articles including general niche, CBD, fashion, home, casino and much more. I think positive and write positive in my words. Furthermore, I am also working on SEO and Link building services.

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