According to Confucius, “the ability to distinguish between right and wrong is the basis of zhi.” The ultimate goal of “zhi” is wisdom, which is always used in deciding on how to use the available resources leading to an increase in one’s financial state.
What is financial status? Financial status refers to the assets and liabilities of a person, which is usually reflected on his financial statement. It also involves on how you manage and plan your money for the future.
All of the financial decisions and activities of a person has an effect on his financial status later on. We are often advised by our parents to avoid buying things that costs more than half of our monthly salary. Or we should always save at least 10% of our monthly income. While many of us find it hard to save due to our current lifestyle, there are some people who have tried and have successfully increased their financial state.
So, how did they do it?
Here are some of the finance rules that can help get you on track to achieve your financial goals:
Net Worth and Budget
Money comes in and goes out. We should evaluate on how our finances come in and how it goes out. We should calculate the difference between what we own and what we owe. “What we Own” represents our assets and “What we Owe” represents our liabilities. Moreover, we need check on a regular basis the common things that we usually spend our money on. From this, we can create our monthly budget. We should also take into consideration that the categories that are included in our budget changes over time depending on the situation. For example, medical expenses due to sudden illness.
Furthermore, it will be helpful for you to list your budget categories in a clean sheet of paper. Example categories to be used are the following: Transportation (gases/ taxis/ subway/ toll free), Utilities (phone/ electric/ water bills), Savings, Personal (clothing/ hair care/ gym), Housing (rent or mortgage), Food, Medical Expenses, etc.
It is said that the more money a person has, the more he spends. As people advance in their careers and earn higher salaries, they tend to increase their spending habits. We should keep in mind that spending more than what we need could hurt our future financial status. We need to keep our financial desire lie low and instead focus on saving more. It takes a lot of disciple to do this but once we surpass this financial test; we will be able to improve the quality of our life later on including our future children.
We need to label accurately our expenses. We need to categorize them either as our needs or wants. To help you draw a line between the two. Needs refers to the things that we cannot survive without: e.g. food, shelter, clothing, healthcare and transportation. While wants refers to the things that you would like to have but you don’t need for survival. For example, new tech gadgets, make-ups, etc.
As early as now, we need to start saving for our retirement and for our future emergency funds. It is never too late to save as long as you have the desire and discipline to do it.
Using this finance rules-of-thumb can be an excellent tool for achieving financial success. However, it is important to build a healthy financial habit that will help you make better financial choices, leading to a better financial status.