As I have crawled out of my terrible money situations in my 20s to being debt free and on the road to becoming financially free, I have practiced these easy financial rules to increase my net worth without stressing.
1. When budgeting, be conservative with your estimates or increase the actual amount as a cushion
I personally do not like to budget every cent or dollar; I think that is a waste of time. I estimate because I do not want to spend more than a few minutes budgeting. What has helped me mentally is to add some cushion to the estimates I enter. I tend to increase the amount by about 10%. As I look over my accounts, I am comforted knowing I can either spend a little extra in certain categories (such as grocery) or I can use that extra money to invest. I am never surprised if I am over my budgeted expenses.
2. Automate to set it and forget it
At this point this has to be proven somewhere, right? There must be some psychological tests showing that if you automate certain actions, you will get further than if you had manually taken action. Personally I automate as much as possible. At a minimum I automate bills to ensure I am never late in payments to keep a near perfect credit score and automate investing specifically into my retirement accounts. Since I have more to invest at the end of each paycheck, I will then manually decide where the leftover money goes. As mentioned on the OMG My Money podcast episode 4 explaining my alternative investment strategy, some money will go into taxable accounts, some will go into my opportunity fund such as my real estate fund, and some will be used to invest in alternative investments such as sports cards.
3. Increase your savings 1% every month
Wherever you might be on your road to financial independence, aim to increase your savings 1% every month until you feel strained with finances. Ensure you have an emergency fund of a minimum 1 month, you are paying off debt, and contributing to your retirement account. What I did was I increased my savings 1% and let it run for a few months to make sure I was not feeling strained financially, and then I would increase it another 1%. The goal here is to make sure you are getting your money to work for you and to avoid spending the extra money on…stuff. I found a happy medium where I was saving a lot and investing where I needed and wanted to invest while not feeling like I was depleting myself of joy. A simple example is not coffee related since I do not drink coffee, but I used to go out of my way to save a few cents per gallon on gas. Now I would rather save the extra 10-15 min to go somewhere closer and pay a few more cents per gallon. The little things will keep you from being needlessly stressed.
4. Keep it simple to get started now
If you are an overanalyzer and overthinker like I am, then you will eventually get bogged down on all the options and making sure you have all the information before making a decision. No matter where you are in your financial life, just keep it simple. Do not overthink whether you should contribute to a traditional 401k or a roth 401k (if your employer offers both) or whether you should choose 90% stock allocation or 50%. Keep it simple, get started, and tweak later. The more time passes by thinking about the options and researching, the more the opportunity will pass you by.
Your turn: have you followed any financial rules that you found so easy and it has helped you increase your net worth?