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9 Money Rules You Should Live By
Money Management

9 Money Rules You Should Live By

To live an exceptional and fulfilling life, you must have rules that guide your existence and keep you in line. If you plan to live a healthy life, having a clean diet and exercising regularly could make sense. The same applies to money; you must live by specific rules if you want to avoid financial troubles and stay in control of your finances.

Having money rules that guide your financial life has various benefits. They'll help develop good habits that prevent you from wasting money to give you a sense of financial independence. Money rules can also help you develop a positive financial mindset to help you achieve your goals. 

Having money rules and sticking to them will help you build a financial identity. You will learn how to avoid temptations, peer pressure, and FOMO– vices that can hinder you from progressing financially.

This article will explore nine rules you should live by and how each can contribute to your financial growth.

Read Also: 10 Rules to Make Money Work for You

Spend Less than you Earn

One of the first steps to becoming wealthy is saving aggressively and using the saved money to invest. And to ensure that you save enough, you have to spend less than you earn. This will free up more money to put away for future use.

While this might sound straightforward, it's not. And if it was, everyone could live by this financial rule and build their net worth. To spend less than you earn, you need to develop financial discipline and reduce your spending. To achieve this, you will have to

  1. Avoid impulse spending by planning every major purchase 
  2. Have a detailed budget and stick to it
  3. Constantly track your expenses 
  4. Beware of all your bad financial habits, like spending to Impress others, and replace them by spending money on people responsibly. 

Read Also: 10 Warning Signs You are Living Beyond Your Means

Don't Take Debt you Can't Afford 

Debt is not necessarily bad, but nonetheless, it is complicated. It can be a helpful tool to build wealth and propel you to achieve your financial goals. But when you take on more debt than you can comfortably handle, you are inviting problems.

The first step to knowing if you can afford debt is to gauge if you have enough income to cover the monthly repayment by calculating your debt-to-income ratio. DTI ratio is the percentage of your income that goes toward your debt repayment. If you earn Ksh80,000 and spend Ksh40,000 servicing loans, your DTI is at 50%.

As a rule of thumb, you should strive to keep your DTI ratio below 35%. This way, you will not only avoid defaulting on your loan, but you will also have enough to meet your living expenses. But if you spend over 60% of your income paying debts, you might struggle to pay your bills and be forced to take on more debts. This can lead to getting into a debt trap or debt cycle that might risk your finances.

Before taking any debt, ensure that it won't affect your DTI ratio and that you can comfortably pay it back without straining your budget. High DTI can lead to defaulting and collateral loss, and you can be denied equity-building debts like mortgages. 

Read Also: Things to Consider Before Taking a Personal Loan in Kenya 

Know Where your Money is Going

Are you the kind of person who wonders where your Ksh900 disappeared after breaking a one thousand note to pay a bodaboda? So you look back and start thinking, only to realise you spent an extra Ksh300 on food that day and bought a pair of sunglasses you don't need. Well, that's what happens when you spend without knowing where your money is going.

Tracking your expenses goes beyond having a budget and keeping a discretionary tab. It requires that you develop good financial habits that prevent you from overspending, punish you when you relapse, and give you confidence that your money is well spent. Some of these habits include:

  • Shopping smarter: Next time you go to a supermarket, go with a list. Think about everything you want to buy and buy only those. This will curb your temptation to grab everything on the aisles.
  • Buy only with cash: Avoid consumer loans such as overdrafts or buy now, pay later offers. While they might be convenient, they can strain your future earnings.
  • When you spend more than your limit, don't increase your budget; cut expenses. Look at a nonessential expenditure like going out next weekend and staying indoors. This will put your spending back in order.
  • Stay true to your financial goals. 

Read Also: I Want, I Want! 5 Rules to Follow When Making Big Purchases

Save Before you Spend

One of the best financial rules you need to live by is paying yourself first. When you receive a paycheck, before you even spend a shilling, set aside at least 15% for saving or investing. They start budgeting for how to spend their remaining income. 

The concept of "saving before spending" has a long list of benefits. For starters, it keeps you financially stable by giving your control over your finances. When you save first, you learn how to live within your means. You will likely avoid money wastage and, most importantly, unnecessary debts.

Other benefits of paying yourself first are:

  1. You will always have money to fall back on in case of emergencies 
  2. You will have peace of mind and develop a sense of financial security 
  3. You will make more money as both your savings and investments can generate extra income
  4. You will be able to achieve your financial goals faster 

Read Also: What Does Paying Yourself First Really Mean?

Have Financial Goals and Revisit them Often

When you embark on any journey, you need the motivation to keep you going. It's what ensures you stay focused on the prize and stay consistent. One of the main reasons people often waste money or ignore their personal finances is that they don't have any goals. And without goals, you lack the drive to improve your finances.

Saving or investing isn't enough; you need to know why you are doing it. Only then can you make better decisions and track your progress. For example, If your goal is to buy a house by the age of 40, you can calculate everything up to how much you need to save per month. Additionally, you can separate these savings from your retirement account and your kid's education fund.

Having financial goals help you stay focused on your money goals. And when you track and review them often, you will stay motivated to achieve them.

Read Also: Money Mastery: How to Set & Actually Achieve Your Financial Goals 

Stay Prepared for Financial Emergencies 

Financial emergencies are inevitable, and when they catch you off guard, they can negatively impact your finances. Unexpected expenses that go beyond your monthly spending allocation or income losses can throw your finances in disarray. You might be forced to spend from your savings, liquidate your investments/assets, or take on debt. 

Staying prepared for emergencies is one of the best ways to protect your current and future finances. Instead of waiting for them to occur, take measures to protect yourself by:

  1. Having a rainy day fund that is equal to three to six months' worth of expenses 
  2. Invest in the right insurance that will help you avoid significant costs like medical bills and car repair and help you generate income when you lose your job

Read Also: 7 Financial Emergencies Everyone Must Be Prepared For

Understand how Risk and Reward Correlate

Every investment involves some level of risk-taking. To know if a risk is worth taking, you have to weigh the reward against the risk before investing your money. Typically, the higher the risk of losing money, the higher the returns. Risk takers are more handsomely rewarded risk-averse individuals for their willingness to take risks.

For example, A person investing in cryptocurrencies can earn high returns, but they can also lose all their principal instantly. Whereas a person saving their money in a bank account has a very minimal chance of losing their principal, but they'll earn close to zero returns after factoring in inflation.

When you understand investment risk, you will know your risk profile and invest in line with it. Your risk profile can range from aggressive to moderate, depending on the vehicles you invest in. If you are aggressive with your investment portfolio, you are after maximum rewards. And if you are moderate, you favor capital appreciation.

When investing, it's crucial that you stay within your risk category. Exaggerating your risk tolerance can lead to losses, and being too timid can lead to missed opportunities. If you need help with how to gauge your risk tolerance, talk to a financial advisor to help you.

Read Also: Fear, Excitement and Financial Risk Taking 

Keep Emotions out of Your Money Decisions 

Ken is a 30-year-old Dentist working at a private clinic. One of his last colleagues recently bought a car, and Ken realised he was only one of the two people in his department not driving. He was consumed by jealousy and envy to the point that he took a loan to buy himself a car. 

Ken didn't buy a car because he needed one. He lives 10 minutes walk away from his workplace. He bought a car because he didn't want to be the last person to buy a car. He made an emotional money decision. 

To afford that loan, he had to borrow against his SACCO shares and have someone be his guarantor. He'll be in debt for years because he involved emotions in his money decisions. Additionally, he spent all his savings as well. If Ken lost his job, he wouldn't know how to service the loan.

Emotions can cloud your judgment, whether fear, envy, guilt, or jealousy. They can prevent you from making sane decisions. They can blind you from considering other factors. For instance, Ken didn't factor in the amount of interest he'll have to pay and how his expenses will rise now that he must pay for car maintenance. He just wanted to serve his emotions.

Don't Depend on One Source of Income

How well could you sustain yourself if you lost your income? One of the most vital rules to live by if you want to achieve financial security is to make yourself immune to loss of income. And one of the ways to achieve this is developing various sources of income such that when one is lost, you don't struggle or spend your savings.

Diversifying your sources of income has various benefits, including:

  1. Helping you build wealth faster 
  2. Helping you provide for yourself and your dependents when you are unable to work due to illness, retirement, and even death
  3. Allows you more time to concentrate on your passions
  4. It offers you flexibility as you can change careers 

Here are also some paths you can follow to develop new sources of income:

  1. Investing in income-generating assets. 
  2. Becoming a freelancer or participating in the gig economy, such as using your car as an on-demand taxi.
  3. Starting a business
  4. Offering part-time consultation services and leveraging your skills to earn money.
  5. Learning a new skill or monetizing your passions and other skills.

Read Also: How to Generate Online Passive Income in Kenya


The nine rules discussed in this post can help you avoid financial troubles and save you from regret later. As you've guessed, rules are only useful when you follow them to the letter. But as you know, it is hard to follow the rules. And it's even harder when you have no one to keep you accountable when you break them.

You will need an effective plan to ensure that you stick by the money rules discussed above. First, be honest with yourself and know why you need these rules. If you are doing it to achieve financial independence, keep your eyes focused on that. 

Second, constantly review and remind yourself of these rules. Habits are not formed on a single day; they require months and dedication from your side. 

Read Also: Want to Tame Bad Spending Habits? Try the 30-Day Rule

And finally, start small and gradually build up. Simplify the rules and tweak them to work to your benefit. For instance, if you want to ensure you always pay yourself first, start by automating your savings. For example, you can instruct your employer to deduct money from your paycheck and send it directly to your SACCO account monthly.

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

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