The cardinal rule of personal finance

Unless you follow this one rule, you could be Bill Gates and you’d still get into financial trouble. Admittedly it would take Bill a little longer than most of us, but still, eventually he’d run into problems.

The cardinal rule of personal finance: spend less than you earn.

It sounds so simple. But so many of us struggle with it. I definitely do. I get 3 lump sum payments of around £1100 to live on during university (one in September, one in January and one in April). You’d think it would be easy to do this – just divide the total by the number of weeks until the next payment comes in, and boom, there’s your weekly budget. But it’s harder than that. It’s tempting to spend a little more one week, knowing that you can just spend a little less next week. Then of course, the same thing happens the next week, and the week after, and before you know it you’re taking out your third student bank account to tap the overdraft to get you home for christmas.

This rule is so important that Stephanie at Poorer Than You calls it Rule Zero. If you don’t follow this rule, you don’t have a hope in hell of building serious wealth. You’ll live a life plagued by debt, creditors and high interest rates. Don’t do it. Work out how much you earn, and how much that leaves you to spend per week. Then spend less than that.

Sounds simple, but it’s hard in practice. Good luck.