It's reported that 70% of Americans say that their financial planning needs some work. So if you've felt like your finances could be in a better spot, you're definitely not alone.

Given everything that's happened over the past year, it's only made staying on top of your finances that much more challenging. In fact, 63% of Americans said their finances have been drastically changed by the pandemic.

Whether it be a lost job, reduced pay, or unexpected medical bills, being in a less than ideal financial situation can add unnecessary stress to an already stressful life.

Since less than 50% of states require basic personal finance lessons to be taught in school, today we're going to go over 5 golden rules of personal finance.

These aren't necessarily tactical pieces of advice, but more general concepts that if followed will improve your financial situation:

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1. Spend less than you make

This may seem obvious, and boring, but spending less than you make is by far the biggest key to financial success.

If you struggle with spending, focus on this one rule until you're at a point where you have positive cash flow at the end of the month.

And this principle carries over no matter how much money you make.

You could make $69 million but if you spend $69.420 million, you're still in a bad spot.

Some strategies to help:

• Pay yourself first (i.e. as soon as you get paid, transfer a little bit of money - it could be $20 - to your savings account before spending anything)
• Create a budget
• Increase your income
• Cancel unused subscriptions
• Consider refinancing high interest loans
• Evaluate insurance policies to ensure you're not overpaying for coverage
  

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2. Stay out of bad debt

You may have heard that all debt is bad and while that's partially true, there's a difference between debt and bad debt.

A simple rule is that if the debt can increase your net worth or has future value (home), it can be good.

If the debt is lowering your net worth (credit card debt) or depreciates in value (car), it's typically hurting your financial situation.

Bad debt is generally considered to be anything with interest rates higher than 7-8%.

Credit card debt is the most obvious bad debt but some others include:

• Pay day loans
• Some car loans
• High-interest personal loans

Avoid bad debt at all costs and if you find yourself in a situation where you have bad debt, make it a priority to pay it off as quickly as possible. It may even make sense to consolidate debt if you several outstanding loans.

If a debt has a 15% interest rate, you would effectively earn a 15% return by paying off the debt so it generally makes sense to pay off high interest debt before making investments because investments don't have guaranteed returns like paying off a high interest debt does.​

3. Invest often

I hate to say it, but you can't save your way to retirement or financial freedom.

Not in today's world.

With inflation hovering around 5-6% right now, that means if you aren't earning more than 5% on your money, you're losing money. This creates a need for investing because savings accounts only pay out aroud .01%.

A phrase I came up with earlier this year is "save for security, invest for independence".

You need to save for emergencies and short term goals but after that, you have to invest, and often.

I generally recommend dollar cost averaging - which is where you invest a certain amount of money each month regardless of how the stock market is performing.

For example, Roth IRA's have annual contribution limits of $6,000. If you took a dollar cost averaging approach, you would set an automatic $500 deposit every month so you max out the contribution limit and you don't have to think about it.

✅ Dollar cost averaging and automated contributions are the easiest way to stay consistent with investing

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4. Set goals & make a plan

Without goals, it's hard to know what actions to take. My mind may work different than most people, but if I don't know the purpose behind something I find myself not doing it.

Like yeah, you know you need to be saving money, but for what?

Creating that "why" is an essential step that I think gets overlooked more often than not which is why I believe you must set goals and make a plan before doing anything financially.

If you don't have goals, it would be really hard to start saving money, or investing, or paying off debt because you don't have any direction.

But if you set a goal of "Pay off all debt in one year so I can save for travel in two years" - now that's something we can work with.

If you had $12,000 in debt and you wanted to save $3,000 for travel, you could then begin working backwards:

To pay off the debt in one year, you'd need to pay down ~$1,000/month. Then if you wanted to travel one year later, you'd need to save $250/month to hit the $3,000.

When you set goals, you have a target to hit. Having that target allows you to begin making a plan for how you're going to hit it.

So if you feel lost in your financial journey, take some time to think about what you truly want to accomplish. Dream big and figure out the numbers afterwards.

Don't limit yourself in the goal setting phase.

You may find out that some goals aren't possible immediately, but you can still work towards them.

After getting some rough goals in mind, you can then evaluate your financial situation to determine what steps need to be taken to get closer to reaching them.

5. Be patient

No matter what you're trying to accomplish financially, patience pays.

Paying off debt? It won't go away overnight.

Investing for retirement? You won't have a million for awhile.

Starting a business? It won't be profitable from day one.

Everything we do in life requires patience and even more so when it comes to our money. Unless you get an inheritance or win the lottery, it's hard to change your situation in a short amount of time.

But with patience and a plan, you can see your progress and stay motivated over time.

Play the long game and when it seems like progress isn't being made, don't forget to step back and look at how far you've come.