There will be moments when you won’t have a stable income — it’s inevitable.You may want to leave or change your job. You may want to go freelance. Or you may lose your job for whatever reason.How do you survive? What would you eat if you didn’t have any monthly income? How will you pay the mortgage?The emergency fund is an important shield for all the financial stress that arises during tough times. It prevents you from resorting to high-interest loans or credit cards. And it allows you to live a more relaxed life, knowing whatever happens, you can survive it.

Why It Matters

Poor and rich people don’t look at money the same way.<ul><li class="ql-align-justify">Rich people have the advantage of being greedy and resourceful. They have money, so even if they lose some, it won’t matter.</li><li class="ql-align-justify">Poor people have the advantage of giving money more value. They think twice about their decisions, which can help them spot potential threats.</li></ul>I was born into a poor family, and that taught me many lessons about money. I learned to be conservative. I learned to budget and track my expenses. The scarcity made me understand I cannot throw away my resources. That’s why I don’t regret anything about my childhood.

Poor vs. Rich Mindset

When I was 15, I asked my parents for money for the first time.I was young and curious. I wanted to go out with my friends. And I noticed an improvement in my family’s financial situation. So I started asking — once, twice, ten times.Then, one day, my father came up with an idea — he would give me $40 a month. I could have used them however I wished, but I shouldn’t ask him for more (if not for school).

1 — Budgeting is everything.

These seven rules act as a roadmap to financial stability and growth.Each principle builds a strong foundation for managing money effectively. I hope you will implement those concepts in your finances.Choose one rule and implement it for the next week. For instance, create a 50-30-20 budget, set a SMART goal, or calculate your debt-to-income ratio.Small changes today can lead to massive rewards in the future. Choose a rule, apply it for a week, and watch how your mindset about money starts shifting.[DOWNLOAD THE <a href="https://cosmopolitanmindset.substack.com/p/7-personal-finance-rules-you-cant-ignore">FREE INFOGRAPHIC</a>]

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The Challenge

I started budgeting before I even knew what budgeting was. And later, that training room became the <a href="https://cosmopolitanmindset.substack.com/p/stop-wasting-money">50-30-20 rule </a>I still follow today. The 50-30-20 rule splits your income into three categories:<ul><li class="ql-align-justify">50% for Needs: Rent, groceries, utilities, insurance — all essential expenses.</li><li class="ql-align-justify">30% for Wants: Dining out, entertainment, and non-essential shopping.</li><li class="ql-align-justify">20% for Savings and Debt: Investments, emergency funds, or paying your debts.</li></ul>

The 50-30-20 Rule

I started investing my money as soon as I made my first 5k. And after that, I continued adding $200 a month.I never wanted a complex investing strategy. I don’t want to have to research stocks and trend topics all day. And I always thought simple is better. So, I went for it.Most people wait for the perfect moment to start. They delay their market exposition and keep the money in the bank. But waiting burns your total gain. And I wanted to avoid it at all costs.

4 — Compound interest is unstoppable.

When you pay yourself first, saving becomes non-negotiable. It protects your long-term goals and minimizes the temptation to overspend on useless items.The second rule is a protective strategy that keeps you from failing. It allows you to save your money before it’s too late. And then, you can do whatever you wish with the rest. You may even spend everything. But at least you have that percentage of money that grows bigger any month.

Many people claim they can’t save money. In most cases, however, it’s a budgeting issue, not an income problem. Tracking your expenses and applying the 50-30-20 rule will reveal unnecessary spending you can cut without sacrificing comfort.People who can’t save money don’t budget their income. They are not aware of their sinks. And without any projection, they don’t know how much money they could save by giving up useless habits.

I promise I won’t use any numbers here, but trust my words.There’s a well-known financial rule called the debt-to-income ratio. This rule recommends keeping your total monthly debts below 36% of your gross monthly income. In particular:<ul><li class="ql-align-justify">Housing costs shouldn’t exceed 28% of your monthly income.</li><li class="ql-align-justify">And the total debt shouldn’t exceed 26%.</li></ul>

5 — Avoid debt that exceeds 36% of your income.

During the first year of my master’s degree, I found a job.It wasn’t anything special — but I loved working there. Being in a fancy office and living the grown-up dream was something new. And even if they paid me only $700 a month, I was happy.Yet, I knew it wasn’t enough to satisfy my shopping hunger. So I had to make a harsh decision — I would use my money only for strictly necessary expenses.I still lived with my parents. I didn’t have to spend anything. And those $4200 (the total over six months of work) lasted until I got my first full-time job (more than two years).

3 — Build an emergency fund.

You may use it for a big project. You can use it to pay your debts. You can even invest and multiply it. Whatever you do, it’s a long-term project. You will never use that money to buy drinks at the bar — that’s for sure. But you will use them to invest in your education, multiply your net worth, or survive critical periods.Now that you've started saving, the next step is ensuring you have a financial safety net for unexpected moments.

Why You Might Need That Money

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Next Steps

On that occasion, I decided to pay myself first. I wanted to save every possible dollar because I knew I would have needed it. Without even knowing, I build my first emergency fund.Life is unpredictable, and emergencies — medical, professional, or personal — can arise at any time. Having an emergency fund with a few month's worth of living expenses is a critical buffer.

The Luxury of Saving Money

I couldn’t have written an article about personal finance without quoting Warren Buffett, so here it is. Inspired by the legendary investor, this rule advises you to stick to investments you comprehend. Don’t aim for hot trends or complex instruments if you lack expertise. Don’t think you are smarter only because you guessed a few market trends.Unfortunately, we have many cognitive biases. The <a href="https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect">Dunning-Kruger effect</a>, for example, makes us overestimate our competence. And that’s a big problem because you don’t know how the market will go tomorrow. Even if you think you know, you don’t.

6 — Invest in what you understand.

I was poor for most of my youth.When I was a little boy, my parents didn’t have the money to pamper me. My friends had new consoles and video games all year. But I didn’t.I never had a PlayStation, a GameBoy, or a Nintendo DS. Going to my friend’s houses and playing all those games was an incredible experience, but I never asked my parents to buy me expensive stuff.

On Being Poor

Do you need all your subscriptions? Do you need to eat out twice a week? Do you need to keep paying the gym subscription even if you haven’t been there for three months? (Seriously, go to the gym!)If you analyze and budget your income, you will understand how much you could save. And this doesn’t mean you don’t have to live comfortably. You just don’t have to waste your money. And adopting the 50-30-20 rule fosters a financial discipline that helps you prevent overspending.

Do you need all your subscriptions?

At the time, I felt awesome. Finally, I didn’t have to ask for money anymore. But then, I discovered two things:<ul><li class="ql-align-justify">I was dependent on that money, so I couldn’t afford to lose them — and my parents rightfully took advantage of it.</li><li class="ql-align-justify">Money is never enough — I had to plan my expenses, or I would have been broke in the first week.</li></ul>

Having Free Money as a Teenager

Here’s what I wanted to do:<ul><li class="ql-align-justify">Keep at least $3000 in my bank account for any short-term emergency.</li><li class="ql-align-justify">Save $5000 in a long-term emergency fund by putting aside $500 monthly.</li><li class="ql-align-justify">Invest everything that exceeds those thresholds until you reach 50k.</li></ul>Those were my initial goals. I reached the first two in my first years of work and plan to complete the last by this year.Yet, my next five years goals will change a bit. I wanted to spend those 50k to pay for a portion of my dream house. But now that I know the effects of the compound, I don’t know if I am going to do it.

My SMART Plan

I knew they didn’t have the money. I knew they were trying to make me and my sister happy. And even if they didn’t know, I was aware of the money situation in the house — and I learned much from it.In my first 10 years of life, I experienced the hunger of a poor country. In the following ten years, I learned making money is complicated. And then, in those last 10 years, I learned how to manage my finances. So today, I will share the seven personal finance rules I learned that you can’t afford to ignore.

Learning to Deal with Money

Does a few years matter that much?Here's the simplest way to think about it: The sooner you start, the more your money works for you. A five-year delay could cost you tens of thousands of dollars.First, I will assume an optimistic annual gain of 7% and say you start investing 5k, followed by a monthly fee of $200 (as I did).<ul><li class="ql-align-justify">If you start now, in 30 years, you will have around 285k.</li><li class="ql-align-justify">If you start five years later, in the remaining 25 years, you will have around 191k.</li></ul>[CHECK THE IMAGE ABOVE]

Why It Matters (1)

After setting up my investment plan, I used my money to scratch some itches — shopping itches.I bought a Mac, an iPhone, and many board games ( big fan here! ) But then, as I got rid of the shopping frenzy, I didn’t know what to do with my money. And I didn’t know what to expect.That’s when I understood I needed some financial goals. And taking from my personal growth background, I wanted to make them SMART.

7 — Set SMART financial goals.

<a href="https://amzn.to/411JoOa">The Richest Man In Babylon </a>by George S. Clason — buy the book through my affiliate link, I will receive a percentage with no charge to you — is one of the most inspiring personal finance books I have ever read.I read it before a stable income. And it convinced me to invest my money long before I had any money to invest. But what does paying yourself first mean?

2 — Pay yourself first.

Following trends blindly can lead to financial losses. However, an informed approach ensures your decisions align with your goals and risk tolerance.Nobody forbids you to invest in something you like. I invested in AI, for example, because I believe in this technology. Yet, you must acknowledge the risk you are taking through sectorial exposure.

Financial goals are effective when they’re clear and actionable. You have to set specific goals and time frames you can easily track. Otherwise, you will never know if you’re doing well or must change something.Also, well-defined goals motivate you. They provide direction and make tracking progress easier. That’s why SMART goals are fundamental for healthy personal finance.

It means setting aside a predetermined amount or percentage of your income for savings and investments. It is the 20% in the 50-30-20 rule. But it is also the most important rule.Clason insists many times — paying yourself first is the key to a successful life. When you do it, you put your money to work. You allow them to multiply. Also, you secure your future income from any life challenges.

What does paying yourself mean?

Too much debt makes life stressful and limits your financial flexibility. If more than a third of your income goes to debt, unexpected expenses can become crisis.<ul><li class="ql-align-justify">Too much debt leads to a stressful life.</li><li class="ql-align-justify">If you have a debt higher than 1/3 of your income, you will find it difficult to manage unexpected expenses. </li><li class="ql-align-justify">Lower debts mean more money you can start investing. You saw how much the compound effect can boost your gains if you start earlier.</li></ul>At one point, you will start having debts in your life. But make sure they don’t break your financial and mental stability.

Assuming a more pessimistic 4%, you will still see a big difference.<ul><li class="ql-align-justify">If you start now, in 30 years, you will have around 155k.</li><li class="ql-align-justify">If you start five years later, in the remaining 25 years, you will have around 116k.</li></ul>The compound effect with a 7% return will be responsible for 208 - 125 = 83k more if you start five years earlier.The compound effect with a 4% return will be responsible for 78 - 51 = 27k more if you start five years earlier.

Why It Matters (2)

Learn 7 personal finance rules that can make or break your financial future. From budgeting to compound interest, these money habits will help you secure your financial freedom.