Balance is how I try to approach my life in pretty much every aspect. I strive to find balance between travel and home life. Between work and play. Between coffee and wine. I think most people would agree with me that balance is important for a happy life. But for some reason personal finance tends to be the area where most people lose their balance. People fall on either side of the financial spectrum and that is particularly true the travel community. People either spend all their money and travel forever or in luxury. Or save all of their money in pursuit of financial stability or wealth and never experience the best that life has to offer.

Saving your money to become financial independent is important, but being willing to spend that money in a responsible and maintainable way to enjoy the journey is also important. My approach to balancing financial independence and a life well lived (and traveled) is constantly improving. Improvement i I have come up with 10 golden rules to help you create a balanced approach to personal finance, life and travel.

1. Pay yourself first 

This is a concept that I was first introduced to in ‘Rich Dad, Poor Dad’ (highly recommend), but it is not a unique idea in the financial independence community. Essentially what this comes down to is the practice of putting your money where it has the most long term positive impact to your life. Put money towards your savings, your mortgage, your goals or what ever you deem as most important before you pay your monthly expenses. This could be travel, this could be retirement. It’s probably going to be some combination of important aspects in your life.

Save for your goals first, spend second. If you don’t put money away first your spending will grow to consume all available money and you will have none left. If you save first you have to restrict your spending to align with what is actually in your bank account. That means at the end of the month if your short money you will have to say no to going on that expensive night out. But it also means that you will accomplish your goals. Practically this means an automatic deposit into a saving account and a responsible usage of credit cards.

2. Keep it simple

I think this is a good rule for life as well as finances. If you can’t understand it you probably shouldn’t be involved in it. The more places you ‘hide’ your money or crazy things you invest in the more you open yourself up to the possibility of being scammed or losing out on potential profit. Make it easy, make it automatic, make it simple.

3. Don’t spend more than what you make

This should be the number one most basic rule of personal finance, but it is also a rule that many people ignore. People constantly spend money that they do not have yet. This is largely due to the ease of use of credit cards. A lot of financial independence bloggers recommend that you completely stop using credit cards, but they can be a powerful tool. You can get all sort of travel discounts and points from the, plus building up a credit score is important. However if you do not have the self control to maintain your spending it is better to have no credit cards than to over spend.

4. Start as early as possible

Compound interest is a miracle. If you plan far enough in advance for retirement, travel, whatever it is you are planning saving becomes so much easier. The earlier you start the less money you have to save and the less you have to give up to get there. Seriously just play around with a compound interest calculator for a while – it’s like magic!

5. Know the difference between wants and needs

You need to learn to identify the difference between a want and a need. I also think you should have a third category of ‘high priority wants’. I’m not saying only spend money on your needs, that sounds depressing. But want I am saying is that you should know the difference so you can balance and prioritize them. Personal finance is personal and what fits into each of these categories will be different for everyone. For example for me a need is my mortgage, a high priority is travel and gym membership and a want is fancy air b’n’b. Some things might be similar over all categories, just with varying levels of financial commitment. For example you need a house, you want a fancy house. Know the difference between the two.

6. Prepare for the unexpected

Sh*t happens, but it doesn’t have to ruin you. You could lose your job, miss a flight, have an unexpected medical cost or have a world wide pandemic pause your travel plans. You need to have enough flexibility in your financial plans to deal with these unexpected situations. This might mean that you plan to stay at your job for a few extra months or that you build multiple streams of income. Have a plan for when the unplannable happens.

An emergency fund is an essential part of that plan, but should not be the only thing in it. An emergency fund needs to be about 3-6 months worth of expenses depending on your individual situations. If you have dependants or if your job is unstable you should plan for a larger emergency fund. You also need to be able to identify when something is actually an emergency and when you can dip into your emergency fund. A chipped nail, a broken laptop or a new business investment are not emergencies. Those are costs that you can realistically predict and should save for separately.

7. Diversify your assets and your income

Most people know to diversify their assets, but have a narrow idea of what that actually means. People will invest in a wide variety of stocks and bonds. However if those are your only investments you are not actually that diversified. Diversifying your assets also means investing in more tangible assets like real estate (or real estate fund) and arguably the most important asset – yourself. Courses, certificates or degrees are investments and you should think of them as such. Yes that mean evaluating the return on investment of them.

Diversification applies to your income just as much as it applies to your assets. People tend to think that their stable 9-5 means that they do not need to diversify any further. Even if your job is the most stable one out there you are still at risk. This has become very apparent for many people during the pandemic. Having a back up income to fall back on means that if you do lose your it does not mean financial ruin. If you do not want to have a ‘side hustle’ there are other ways thats you can protect yourself. Dividends from investments are a diversified income stream. Making sure that you’re up to date with course, certifications or other very employable skills helps. The less diversified you are the larger your emergency fund should be.

8. First emergency fund, second debts, third retirement/savings

This is known as the order of operations and it simplifies where your money should go when. As I’ve already mentioned an emergency fund is very important to your personal finances so that should be where your money goes first. You do not necessarily need to make it huge right off the bat, but make sure you have one before you start putting your money else where.

Next should be debts, particularly high interest debts. If you have any consumer debts you should be paying them off as soon as you can. Yes that means before you travel or start spending more money. I know it sucks to have to put off your dreams until you have paid off your debt, but interest can sometimes be so high that if you don’t prioritize it you may never pay it off. If you have lower interest debt (under ~5%) like a mortgage or some student loans you can have a little bit more flexibility on repaying your debts. A lot of people will still travel while paying off student loans and I think that is entirely fine as long as you have worked that into your travel finances. Also make sure that you are paying enough back that you actually affect the principle and not just the interest. Otherwise you will come back from travel with more debt than when you left.

Finally your savings. This is where you can get creative and decide on your financial goals. What ever you are saving for should come third in your order of operations. Why? Because if you do not deal with the first two elements of the order of operation you risk throwing off your goals. You do not want to go backwards on your goals because you had an emergency or because you are continuously paying high interest.

9. Create goals and track towards them

Goals are awesome! They are so much fun to track towards and accomplish. If you find finance dull, relate it to goals that you want to accomplish using money. Do you want to retire at 35, buy a house, travel for a year, open a business? What ever you want to do write it down and record your progress to it. You will be so much more motivated to save when you know why you are doing it. I find journaling a great way to record and track towards my goals. There is something about physically writing it down and checking the box that brings me so much joy! But there are lots of different ways and places that you can write and track towards your goals!

You will also notice that I said goals, not goal. If travel is your main goal, great, but make sure its not your only one. As I’ve talked about before, travel is not a direct line to a happy life and you should not treat it as much. In my opinion it is a very big part of a happy life, but you should have other things that are important and you will likely need money for them.

10. Continuously learn and improve

You are not stagnated, Your goals change and your financial situation will change. You need to strive to be continuously learning, growing an continuously improving your financial literacy. This is part of the reason that you keep goals and track your budget. It helps you identify where your money is not aligned with your priorities and figure out ways to improve your personal finances. Stop thinking of finance as boring, start thinking of it as a tool to get you where you want to go. And like every tool it needs sharpening every once and a while.

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