The single most important financial rule
There are plenty of ‘rules’ when it comes to money.
You could probably fill a book (or two) with all of the words of wisdom we hear on a daily basis from financial experts. Some are shockingly simple. Others more complex; requiring a lot more thought and energy to get results.
The simple rules are usually the best. If I had to choose the single most important financial ‘rule’, it would be this:
Spend less than you earn.
There is nothing new or original about this ‘rule’. In fact, it is so simple it might be described as blindingly obvious.
Until you accept this simple financial rule, there is little sense in pursuing the complicated stuff. Time and money spent on learning the secrets of the investment experts or sitting in workshops listening to salespeople exposing the virtues of becoming a property millionaire is likely to be wasted until you get this under your belt.
Spend less than you earn.
In practical terms this means budgeting and making sure your net (after tax) income consistently exceeds your committed and discretionary expenditure.
Getting this right often means a) cutting your expenditure, b) increasing your income, or c) a combination of the two. The wider you can make this gap (in a positive sense), the better. It then matters what you do with the surplus income each month.
Martin Bamford is site editor of BrilliantWithMoney and a Chartered Financial Planner at Informed Choice. You can follow him on Twitter @martinbamford.
