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Sometimes, in personal finance, the simple actually works

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When it comes to making financially wise decisions, economists usually rush to tell us that only rubies rely on accepted rules.

The financial benefits often go unnoticed, except for a subtle approach that focuses on delivering optimal results. (Which, of course, made the video an overnight sensation.)

And that attitude creates its risk. That we are all so cowardly or overwhelmed by all the details of progressive theories and strategies that in the end we leave the perfect to pursue the enemy of good. We get frostbite չենք we do nothing.

However, according to a recent Morningstar report, academic research has shown that sometimes simple financial rules can work well in certain situations.

Morningstar himself set out to dive into the growing popularity of financial rules, which may be more effective.

Popular financial rules

Nearly 900 participants in the study were introduced to a set of financial rules from four broad categories և asked which ones they used the most.

Debt management. 67% of the participants used և ” pay more than the minimum payment ”, միշտ ‘always always pay the debt in full’.

Pending axes 72% used “do not spend more than you make”, followed by “make a shopping list” – 71%.

Savings 69% of respondents used both “save as much as possible” and “separate your savings and expense accounts”.

Investments: Diversification of your assets was the most common legitimacy – 63%, followed by “invest according to your risk tolerance” – 62%.

Financial rules that seem to work

Study participants were also asked a number of questions that allowed researchers to assess their overall level of financial well-being based on a financial well-being scale developed by the Consumer Financial Protection Bureau.

The CFPB Financial Welfare Scale requires participants to rate on a five-point scale, from ‘totally’ to ‘not at all’, their personal rating on 10 statements, including ‘Can I handle financially’, ‘I could handle a big unexpected expense’? “My finances control my life.”

Researchers later explored which rules are best associated with financial well-being. Interestingly, these are not necessarily the most commonly accepted rules.

The five rules that have the strongest connection with financial well-being.

– Always pay the debt in full, if possible.

– Save at least 10% to 30% of your monthly income.

– Invest in line with your risk tolerance.

– Do not spend more than you cook.

– Have an emergency fund to cover the cost of living for three to six months.

The researchers carefully noted that this is just an interconnectedness. More research is needed to understand the extent to which this rule actually increases one’s financial well-being. But there is no doubt that if you follow these rules, you will probably feel good about your finances.

Be specific: make it as easy as possible

Researchers have found several examples of well-intentioned but vague rules being more relevant to people with low well-being. The rule of “try to find extra money” had the worst negative relationship to financial well-being, and “pay for yourself first” also fell into place. This may mean that the less specific the rule, the more difficult it is to enforce.

To that end, the more perseverance and willpower you have to use to maintain any dominance, the harder it will be to hold on to it. The good news is that so much of your financial life can be automated. Whether it’s a down payment, automatic bank transfers from your current savings account և automated investments in retirement accounts (through work or your own IRA), technology is ready to help you get into the habit of financial transactions. which can build financial security.

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