The Ruly Money Scale
All money management discussions inevitably start with the basics of budgeting. Income should be greater than expenses. Just like dieting, we all know this simple formula but in practice, there are a lot of things that sabotage our decision making. We aren’t completely rational when it comes to money. How we spend our money tells people a lot about our hopes and dreams and how we view ourselves.
If you are aiming toward building wealth and living without financial worries, however, you have to constantly bring yourself back to basics. You have to face the cold, hard numbers and take an honest look at your decision-making.
Below, I created the Ruly Money Scale based on our family’s experience to date with money. Our philosophy has always been that it is not about the total dollars of our income or net worth but rather that our finances are structured so that we don’t have to worry about money. Over time, we have started low on the scale and worked our way up. We are not yet at the coveted 10 position but we have plans to get there one day.
As a quick check on your own financial planning, I invite you to take a look at the criteria and figure out where you are on the scale.
The Ruly Money Scale
0 |
You don’t have enough money to pay even the minimum on all of your bills. Each month you decide which bills get paid and go a little deeper into debt. Collections agents are calling. If you are in this situation, it is time to seek professional help from a bankruptcy attorney, credit counseling service or financial advisor. |
1 |
You have enough money coming in to meet basic expenses and pay at least the minimum on all of your bills, but you receive some assistance to do so, whether public assistance for food or housing or you are living rent-free with family members. |
2 |
You have enough money coming in to meet basic expenses and pay at least the minimum on all of your bills without assistance. You live independently. |
3 |
You have more than enough money coming in to pay routine bills like utilities, gas and grocery shopping. You pay the minimum monthly payment on fixed debt obligations like student loans, car loans or mortgages and you pay your credit card bills in full. You live independently. You have appropriate health and life insurance, as needed. |
4 |
All of 3 plus you save at least some money for emergencies and retirement. |
5 |
All of 4 plus you have a fully funded 6-8 month emergency fund. You save an appropriate amount of money toward retirement. |
6 |
All of 5 plus you have paid off some of your fixed debt obligations, like student loans or car loans. |
7 |
All of 6 plus you have no student loans or car loans. You pay more than the minimum payment on your mortgage. |
8 |
All of 7 plus if you have children, you save some money for college education. You occasionally need to take out loans for major purchases like a new car or major home improvements. |
9 |
All of 8 plus if you have children, you save an appropriate amount toward their college education. You may still occasionally need to take out loans for major purchases but you pay them off at an accelerated rate. |
10 |
All of 9 plus you have no loans of any kind. You have funds budgeted to pay any major expenses (such as purchasing a car, significant home improvements, college education expenses, etc.) in cash. |
While I won’t be so nosy as to ask you to comment with your scale rating, I would like to know your comments on how you think the scale is structured. Are there financial milestones you would include at the various stages that I have omitted? Do you agree with my criteria for a perfect 10?
P.S. There have been so many great retirement planning articles published lately. I would like to recommend this 40-minute webcast from Merrill Lynch on retirement planning, aimed particularly at younger people. You can also sign up to receive free updates from Merrill Lynch for future webcasts.