Guardrails in our life are important because they help keep us from getting into situations that are catastrophic. Guardrails are designed to keep vehicles from veering off into dangerous or off-limit areas. If you are driving down the interstate and you hit a guardrail, yes it will scrape up your vehicle, but it will also keep you from driving off into a ditch and putting you in a life-threatening situation. They help reduce the damage by keeping us in the safety zone. The way guardrails on the road are important, we also need to build financial guardrails into our life. Ask yourself - are the guardrails placed inside the safety zone or in the danger zone? They are placed a several feet into the safety zone to keep you from reaching the dangerous area. Most financial problems we experience could be avoided if we had some boundaries in our life. In this article we will cover some of the financial guardrails that you can implement to avoid the danger zone. The Purpose of Financial Guardrails Financial guardrails are something we all need in our life. We need to have the spot where we say, “wait a minute, I am getting to far outside the lines? If I do not make some adjustments things are going to get ugly.” Our financial guardrails can vary by the season of life we are in. A young married couple with three kids is probably going to have some different limits than a retired couple who has saved and planned all their life. Just because your guardrails may look different than somebody else’s does not mean you are wrong. The important thing is to have limitations in place, so you don’t cross the line. Years ago, I decided to make a financial decision on purchasing a rental property with a very short overview to my wife. She trusted me enough to go along with the decision and since we had another partner involved it greatly reduced our financial risk. This investment made sense, it checked all the boxes that you need to verify when purchasing a rental property, but at the same time the timing was not right for the two of us. We had our second child on the way at the time and we used most of our three to six-month savings that was allotted for our emergency fund. In other words, I didn’t have a lot of extra cashflow, and I had cut my safety net should something have happened to my full-time job. Purchasing an additional property, that if sitting without a tenant would cost us personally an additional $1,000 a month, was not the smartest financial move. It caused us to be tight and cautious for three years until our lease purchase went through and the tenant went through with the closing. A simple guardrail that we now have in place could have saved a lot of tension on a young marriage with two small children. Benefits of Guardrails There are a lot of benefits to having boundaries in our life. Most people have relational boundaries, health boundaries, and other guardrails that help keep us from going too far. A personal health guardrail I have always had is that if my pants start getting tight, I have to go on a mandatory ten day exercise and eating program. This ensures that I do not gain weight past a certain point or I have to get extremely serious about what I am eating and the exercise programs I must complete. 5 Benefits of Financial Guardrails The biggest benefit I can see is that it helps keep peace in your home. When you have financial boundaries, it will help make sure you are making the right move and are not getting to excited in the moment for a future headache. Reduction of Rushed Decisions. If you have a guardrail of talking with your spouse or checking with your financial advisor before making a financial decision that is of a decent size, it will stop you from making a rushed decision. You will have to lay out the pros and cons for good financial advisor. Your spouse will usually ask some questions that make you think about something that you may not have thought about. This will not make you say no, but most of the time when you sleep on something over night you have better clarity the next day. Reduction of Bad Investments. Like the investment I talked about above, it was made in haste and I did not count the cost of what that would mean for our finances over the next several years. Guardrails will sometimes push you out of bad decisions. Remember that distractions dress up as opportunities sometimes and will pull your focus away from your real goal. Keeps the Boat from Sinking. Have you ever been on a pool float that had a hole in it and started letting in water – it didn’t end well did it? When we make bad financial decisions there is always the chance that it could sink our financial ship. Never put yourself in a place where a decision can destroy your finances. This can be prevented through debt guardrails, work life balance, investment minimums, and other rules that keep us from getting to far out without a way back in to fix the leak. Keeps us from being a slave. There is a scripture that says the borrower is slave to the lender. I had an employee at one point that was spending 62% of her income on her house payment and utilities. She was a slave to this house and her lender. She was trying to have a good home for her family and had great intentions, but because she didn’t have the financial knowledge to know how much she could borrow in a fair portion of her income she became entrapped to this house. Guardrails keep you from getting into this position. 10 Financial Guardrail Examples Below are some good rules to implement that will keep you from getting to close to the financial ledge. Remember these are not meant to ruin your life or imprison you to a straight line for the rest of your life, they are here to direct and protect your financial future. Borrowing and Debt Guardrails. Maximizing the amount of debt you take out is a very smart guardrail. Debt is the number one way to get in trouble financially. Below are five thoughts for how you may want to look at your debt or borrowing guardrails. Capping the amount of net income you use to pay for debt. Never borrowing above 20% of your gross income. Never borrow money for something that depreciates in value. Only borrow money for a family home. Dave Ramsey suggests only taking out a 15-year loan. Talk with spouse and/or financial planner before making any monetary decision over a certain amount. If you call your financial planner before buying a jacket or a bag they will probably hang up on you, but it would be smart to run it be a financial advisor before buying a new car, new house, or putting a decent portion of your net worth into an investment. If you don’t want to use a financial advisor – find someone you trust to bounce things off. Sleep on it. Some of the best advice you can get is never rush into making a financial decision. Sleep on it and think about it in the morning will always bring clarity. Some of my bad decisions come from moving too quickly. I am an opportunist by nature so everything can sound like a great deal to me, however, talking with my wife and sleeping on it has saved me a lot of heartache. Pay Yourself First. We have written an article on this one, but make sure you are paying yourself first before you even think about buying a car or a house. If you do not have the discipline to pay yourself first, you will be paying for that purchase for a long time! Monthly Financial Talks. Another thing that can help your finances is to talk about them. If you and your spouse never talk about your income and expenses – you will be on different pages and it will lead to problems. Some people suggest weekly discussions, but if you are not discussing your finances once a month you will probably not be headed down the same path or even down a path at all. Mind Your Own Business. Quit trying to keep up with the Joneses. “The problem in today’s society is, I know too much about what others have that I don’t have” – Andy Stanley. Make sure that you are not getting into discontentment trying to be like other people. Chase your own dreams and desires. We don’t become satisfied by buying things to impress other people. Credit Cards. Having a credit card that you can’t pay in full each month is dangerous. It causes us to spend more than we normally would and pay more for it if we are not able to pay the card in full each month. My family has made the decision that we will never have a balance on our credit card. However, I have found in our finances that when we use the credit card, we spend more than we would normally spend. Set your own guardrail on this one, but the easiest guardrail for guaranteed success is don’t sign up for one. Simple enough – decide how much you are going to save and in what cases the savings will be used. Stick to it. Set Financial Goals. If you don’t have future goals for where you want to be with your finances, you will likely not have a strong financial future. Put guardrails around your regular expenses, around your savings, around what constitutes necessary and what is just a want. These will help you reach a good place. Are you going to tithe? The Bible tells us in Malachi 3 that we should give 10% of everything we make to the Lord. This helps us stay out of a hoarding mentality and God set this up to remind us that our increase comes from him. Our giving shows that we realize our increase comes from him. This has been the biggest guardrail in our marriage. This is our live or die principle – we follow this principle above all else. I highly recommend you study this passage more and see the promises God has for you when you do this. We have shared ten financial guardrails for your finances that can help you keep out of the danger zone. It’s up to you what you implement or what additional guardrails you put into action. Remember that even if you hit the guardrail you may get scraped up a little bit, but these principles will keep you from financial disaster!