Five Rules To Improve Your Financial Health

The term “personal finance” refers to how you manage your money and how you plan for your future. All of your financial decisions and activities have an effect on your financial health now and in the future. We are often guided by specific rules of thumb – such as “don’t buy a house that costs more than 2.5 years’ worth of income” or “you should always save at least 10% of your income towards retirement.” While many of these adages are time tested and truly helpful, it’s important to consider what we should be doing – in general – to help improve our financial habits and health. Here, we discuss five broad personal finance rules that can help get you on track to achieving specific financial goals.

Do the Math – Net Worth and Personal Budgets

Money comes in, money goes out. For many people, this is about as deep as their understanding gets when it comes to personal finances. Rather than ignoring your finances and leaving them to chance, a bit of number crunching can help you evaluate your current financial health and determine how to reach your short- and long-term financial goals.

As a starting point, it is important to calculate your net worth – the difference between what you own and what you owe. To calculate your net worth, start by making a list of your assets (what you own) and your liabilities (what you owe), and then subtract the liabilities from the assets to arrive at your net worth figure. Your net worth represents where you are financially at that moment, and it is normal for the figure to fluctuate over time. Calculating your net worth one time can be helpful, but the real value comes from making this calculation on a regular basis (at least yearly). Tracking your net worth over time allows you to evaluate your progress, highlight your successes and identify areas requiring improvement.

Equally important is developing a personal budget or spending plan. Created on a monthly or annual basis, a personal budget is an important financial tool, because it can help you:


 Plan for expenses

 Reduce or even eliminate expenses

 Save for future goals

 Spend wisely

 Plan for emergencies

 Prioritize spending and saving
There are numerous approaches to creating a personal budget, but all involve making projections for income and expenses. The income and expense categories you include in your budget will depend on your situation and can change over time. Common income categories include:


 Alimony

 Bonuses

 Child support

 Disability benefits

 Interest and dividends

 Rents and royalties

 Retirement income

 Salaries

 Social security

 Tips

 Wages
General expense categories include:


 Debt payments – car loan, student loan, credit card

 Education – tuition, daycare, books, supplies

 Entertainment and recreation – sports, hobbies, movies, DVDs, concerts, Netflix

 Food – groceries, dining out

 Giving – birthdays, holidays, charitable contributions

 Housing – mortgage or rent, maintenance

 Insurance – health, home/renters, auto, life

 Medical/Healthcare – doctors, dentist, prescription medications, other known expenses

 Personal – clothing, hair care, gym, professional dues

 Savings – retirement, education, emergency fund, specific goals (i.e. vacation)

 Special occasions – weddings, anniversaries, graduation, bar/bat Mitzvah

 Transportation – gas, taxis, subway, tolls, parking

 Utilities – phone, electric, water, gas, cell, cable, Internet
Once you’ve made the appropriate projections, subtract your expenses from your income. If you have money left over, you have a surplus and you can decide how to spend, save or invest the money. If your expenses exceed your income, however, you will have to adjust your budget by increasing your income (adding more hours at work or picking up a second job) or by reducing your expenses.

To really understand where you are financially, and to figure out how to get where you want to be, do the math: calculate both your net worth and a personal budget on a regular basis. This may seem abundantly obvious to some, but people’s failure to layout and stick to a detailed budget is the root cause of excessive spending and overwhelming debt.

Recognize Needs Vs. Wants – and Spend Mindfully

Unless you have an unlimited amount of money, it’s in your best interest to be mindful of the difference between needs and wants so you can make better spending choices. “Needs” are things you have to have in order to survive: food, shelter, clothing, healthcare and transportation (many people include savings as a need, whether that’s a set 10% of their income or whatever they can afford to set aside each month). Conversely, “wants” are things you would like to have, but that you don’t need for survival.

It can be challenging to accurately label expenses as either needs or wants, and for many, the line gets blurred between the two. When this happens, it can be easy to rationalize away an unnecessary or extravagant purchase by calling it a need. A car is a good example. You need a car to get to work and take the kids to school. You want the luxury edition SUV that costs twice as much as a more practical car (and costs you more in gas). You could try and call the SUV a “need” because you do, in fact, need a car, but it’s still a want. Any difference in price between a more economical car and the luxury SUV is money that you didn’t have to spend.

Your needs should get top priority in your personal budget. Only after your needs have been met should you allocate any discretionary income toward wants. And again, if you do have money left over each week or each month after paying for the things you really need, you don’t have to spend it all.

Start Saving Early

It’s often said that it’s never too late to start saving for retirement. That may be true (technically), but the sooner you start, the better off you’ll likely be during your retirement years. This is because of the power of compounding – what Albert Einstein called the “eighth wonder of the world.”

Compounding involves the reinvestment of earnings, and it is most successful over time: the longer earnings are reinvested, the greater the value of the investment, and the larger the earnings will (hypothetically) be.

To illustrate the importance of starting early, assume you want to save $1,000,000 by the time you turn 60 years old. If you start saving when you are 20 years old, you would have to contribute $655.30 a month – a total of $314,544 over 40 years – to be a millionaire by the time you hit 60. If you waited until you were 40, your monthly contribution would bump up to $2,432.89 – a total of $583,894 over 20 years. Wait until 50 and you’d have to come up with $6,439.88 each month – equal to $772,786 over the 10 years. (These figures are based on an investment rate of 5% and no initial investment. Please keep in mind, they are for illustrative purposes only and do not take into consideration actual returns, taxes or other factors). The sooner you start, the easier it is to reach your long-term financial goals. You will need to save less each month, and contribute less overall, to reach the same goal in the future.

Recognize and Manage Lifestyle Inflation

Most people will spend more money if they have more money to spend. As people advance in their careers and earn higher salaries, there tends to be a corresponding increase in spending … a phenomenon known as lifestyle inflation. Even though you might be able to pay your bills, lifestyle inflation can be damaging in the long run, because it limits your ability to build wealth: Every extra dollar you spend now means less money later and during retirement.

One of the main reasons people allow lifestyle inflation to sabotage their finances is their desire to keep up with the Joneses. It’s not uncommon for people to feel the need to match their friends’ and coworkers’ spending habits. If your peers drive BMWs, vacation at exclusive resorts and dine at expensive restaurants, you might feel pressured to do the same. What is easy to overlook is that in many cases the Joneses are actually servicing a lot of debt – over a period of decades – to maintain their wealthy appearance. Despite their wealthy “glow” – the boat, the fancy cars, the expensive vacations, the private schools for the kids – the Joneses might be living paycheck to paycheck and not saving a dime for retirement.

As your professional and personal situation evolves over time, some increases in spending are natural. You might need to upgrade your wardrobe to dress appropriately for a new position, or, with the addition of a baby, you might need a house with one more bedroom. And with more responsibilities at work, you might find that it makes sense to hire someone to mow the lawn or clean the house, freeing up valuable time to spend with family and friends and improving your quality of life.

The Diet Connection and Calories

A balanced diet should be part of any weight control plan. A diet high in complex carbohydrates and moderate in protein and fat will complement an exercise program. It should include enough calories to satisfy your daily nutrient requirements and include the proper number of servings per day from the "basic four food groups": vegetables and fruits (4 servings), breads and cereals (4 servings), milk and milk products (2 - 4 depending on age) and meats and fish (2).
Experts recommend that your daily intake not fall below 1200 calories unless you are under a doctor's supervision. Also, weekly weight loss should not exceed two pounds.
Remarkable claims have been made for a variety of "crash" diets and diet pills. And some of these very restricted diets do result in noticeable weight loss in a short time. Much of this loss is water and such a loss is quickly regained when normal food and liquid intake is resumed. These diet plans are often expensive and may be dangerous. Moreover, they do not emphasize lifestyle changes that will help you maintain your desired weight. Dieting alone will result in a loss of valuable body tissue such as muscle mass in addition to a loss in fat.
How Many Calories
The estimates for number of calories (energy) used during a physical activity are based on experiments that measure the amount of oxygen consumed during a specific bout of exercise for a certain body weight.
The energy costs of activities that require you to move your own body weight, such as walking or jogging, are greater for heavier people since they have more weight to move. For example, a person weighing 150 pounds would use more calories jogging one mile than a person jogging alongside who weighs 115 pounds. Always check to see what body weight is referred to in caloric expenditure charts you use.

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Attention, body needs nutrition

What does the body need in order to do its work? (Food.) We also say that the body needs proper nutrition. What does the food provide? (Energy.) What foodsprovide energy? (Fruits, vegetables and grains because they give us sugar andstarch for energy.) We say that proper nutrition is the first principle of goodhealth. What does that mean? (Pause for student comments.)
Now let’s talk about what we did in the Mathematics Center. We worked withordinal numbers. Ordinal numbers tell us the position of an object. Look at theword “order”. Can you find part of that word in “ordinal”? Yes, “ord” is in
“order” and in “ordinal". That’s what ordinal numbers tell you — the order or theposition of objects. The ordinal numbers relate to the cardinal numbers. The cardinalnumbers are the numbers we are familiar with — they tell us how manythings are in a set or a group.
Now, why do you think that we say that nutrition is the first principle of goodhealth? Yes, proper nutrition is the first principle of good health because withoutnutrition the body cannot continue to live for a long time in good health. Whathappens when we are sick or do not have energy? Are we happy? Can we do thethings we want to do? No, nutrition is important, and so we say that it is the firstprinciple of good health.
When we studied about foods that give us energy, what experiments did youcomplete? What did we learn in our experiment using iodine? Yes, many foodsthat we eat contain starch, which is one food that gives us energy.
Nutritionists, people who study the kind and amount of food that people needto be in good health, measure the amount of food energy living organisms need byusing the unit of heat called a calorie. We use this unit to tell us how much foodwe need each day. If we know how much food we need each day, we will be ableto balance our meals and to avoid the weight we would gain if we ate too muchfat and too much starch.
But starch in our diet is not enough. What else do we need? What do fish,chicken, turkey and beef provide? (Those foods give us proteins that we need tobuild muscles and renew all the cells.)
As we saw from the activities on proper nutrition, all foods give us energy andhelp us build our bodies, but all foods give us more of one thing and less ofanother than the body needs. Very few foods give us everything the body needsall at the same time. That is why we need to eat balanced meals. The studentsconsider: Is fat necessary for the body? Is it an important food? How much fatshould we have in our daily diet?
You worked on an activity that required you to balance your body in order towalk from one end of the beam to the other. What did you have to do to stay inbalance? Yes, you couldn’t lean over too much on either side — you had to stayin the middle. What do you have to do in riding a bicycle? You can ride a bicycleonly if you balance on it. The same happens with your body and balanced meals.
You get energy and “building blocks” when you eat “balanced meals.” What doyou suppose “balanced” meals are? (Pause for student responses.) Yes, balancedmeals are meals that include foods from each of the five food groups. We don’twant to have too much of one thing and very little of another. (Display pictures offood from the Food Guide Pyramid.)
The Food Guide Pyramid is a guide, a suggestion, of the types and amountsof food that a person needs to be healthy. The Guide tells us that the group we 14 Unit 1 Good Healthshould select the most from is the Bread group, which includes oatmeal, Creamof Wheat, rice, spaghetti, for six to 11 servings every day. The next groups are the Vegetable group, which should include three to five servings every day, and the
Fruit group, which should include two to four servings each day. The Milk groupincludes cheese and yogurt, and should include two to three servings every day.
We should have the same number of servings per day from the Meat group,which includes beef, chicken, pinto beans, eggs and nuts. At the top of the pyramidand having the smallest triangle, are the fats, oils and sweets. This is notconsidered a food group because all foods contain fat and sugar. To be healthy,however, we should use fats, oils, and sugar barely, or with care. Fats and sugarare important, but they do not give energy and building blocks as do other foodsin a balanced diet.
We also said that one of the body needs is water. Do all living things need waterto live? We are going to look at the amount of water that living organisms need.

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