4 Cardinal Rules of Money Management

Money management is an important practice that should start with first paycheque
4 Cardinal Rules of Money Management
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Entrepreneur Staff
Chief Correspondent
3 min read

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It’s not just the rich or the elders who have to create a plan for their money. Money management is an important practice that everyone should start with their first paycheque itself. Being well organised with your money is essential to living a financially sound life.

We tell you four cardinal rules of money management that you must follow.

4 Cardinal Rules of Money Management

Spend less than you earn

Spend less than you earn
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The first step of budgeting is to understand whether your expenses are in line with your income. If you don’t track your expenses diligently, it is easy to blow up all your income even before the month ends. For credit card users, it’s even easier to spend way more than they bring in as credit can create an illusion of higher affordability.

To ensure you don’t do this, note down your monthly essential and non-essential expenses and subtract them from your income. If you get a negative number, start eliminating avoidable expenses till you get your spending on track.

4 Cardinal Rules of Money Management

Save at least 10% of your income

Save at least 10% of your income
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Importance of saving cannot be overstated.  It shelters us during emergencies and empowers us to spend on things without having to borrow. And yet, many postpone including saving in their budget as they give spending precedence over saving.

Financial planners say that 10% is the bare minimum that should be stashed away at the start of the month before you start spending. You can either automate this in a liquid fund, or start a recurring deposit or simply transfer it into a secondary savings account.

New earners with less income should not postpone this practice for later thinking that 10% on their skimpy incomes will be insignificant.

4 Cardinal Rules of Money Management

Control your debt

Control your debt
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Data from RBI shows that household debt of Indian’s has increased significantly between FY 2013-14 and FY 2018-19. Share of personal loans and credit card debt alone more than doubled in that period.

Easy availability of credit encourages spending and can easily push you into a debt trap if not used responsibly. One should try to avoid taking loans completely for discretionary spends. If you do have to borrow, make sure that equated monthly installments (EMIs) do not exceed 20 per cent of your income.

When you take a loan, make it a priority to repay it before taking up any more loans as multiple loans affect your ability to build wealth in the long term.

4 Cardinal Rules of Money Management

Invest for your future

Invest for your future
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Saving helps create a safety net for emergencies but investing is essential to fulfill future financial goals. Don’t let your saving idle away in deposits or savings account as inflation will eat into its value. Once you have accumulated a corpus for emergencies, start investing your savings in suitable financial instruments to grow that money.

Also Read: Why Saving is Not Enough

Start by mapping out your goals. Depending on the time horizon of those goals and your risk appetite, invest across a mix of financial products. This strategy is known as asset allocation.  

  • 4 Cardinal Rules of Money Management
  • Spend less than you earn
  • Save at least 10% of your income
  • Control your debt
  • Invest for your future
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