Nowadays, controlling personal finance can be challenging due to the high-speed world. Nevertheless, means and guidelines being put into practice appropriately make the understanding and the flow of achieving financial security and success comprehensible to individuals.
This blog post delineates twelve core tenets of managing money effectively that will guide you through achieving financial fitness and wealth. In the following sections, there is a lot of practical advice and tips for those who are just starting their journey, as well as insights for those who are not satisfied with the financial results they have achieved. Below here are 12 Principles of Personal Finance:
1. Principle of Giving
It is a basic understanding that regardless of one’s level of knowledge of religious teachings, one understands that it is noble to give and help others and that selfish traits are frowned upon. It’s natural to be selfish and self-centered; that’s what is said in children’s stories: all characters are selfish and greedy, and most people are unhappy (Grinching and Scrooge).
Growing up, we learn that it is right to share, and therefore, giving should not be something that one outgrows. It has influenced the character of a person following the act of giving. It makes you a better person. It makes you happier.
Finally, I would strongly suggest that your charity should be better described as a percentage of your earnings. Being generous has a much greater positive impact if the thing given causes you some amount of annoyance. Hence, when advancing in age and you are experiencing a rise in your income, there is a need for you to also graduate in your giving as well. Making a choice of a percentage as the goal will help ensure that. This principle is thousands of years old – tithing means a tenth (10%).
2. Principle of Researching
The principle of researching has to do with expanding that knowledge base to make well-informed financial decisions. Some of the things that can be learned at an early age are:
- how do tell what product is, in fact, the best rather than just the best-marketed
- how to get the biggest bang for your buck, and how to get the cheapest price possible
- advice on where to obtain a good deal while buying a second-hand car
It’s important that, as an adult, you do your homework because the stakes are so much bigger, and the impact such a decision will have on you and your family is massive. Just like when one selects an area to live in and chooses the house to be bought or the insurance to be bought or invested, one has to get it right and make the right decisions.
3. Principle of Saving
It is only natural that the Piggy Bank is the appropriate mascot for personal finance when you’re a child. In most cases, it is important for everybody not to buy that new toy before being able to make the necessary savings for it. But does this lesson stick? Regarding the federal government deficit amount and the quantity of consumer credit in the U.S., says ‘no.’
Hopefully, you have encountered phrases such as “fool me once shame on you fool me twice shame on me.” This is a very important principle of financial as well as personal life. Another natural and childish instinct is impatience – the desire for immediate reward – which is strongly opposed in the adult world. If left to run rancid, this creates an over-the-top expensive life and unmanageable debt. Possessing a credit card, along with the availability of temptations and inducements of advertising and comparison with others, gives the best opportunity for instant gratification.
Everyone understands that people should save money, but to do so is an entirely different question. Sacrifice is needed not to imitate our neighbors or buy the newest iGadget. That is probably why most of the books and articles about personal finance are mainly motivational. People need it.
Tip: Based on a person’s basic belief system about life and money, he/she should set certain measurable objectives for savings. Do not accumulate money with no reason to do it. Savings should, therefore, be associated with certain objectives.
Tip for parents: To teach the principle of saving, the amount of money given as allowance to the child is less than what he or she will require to purchase something he or she desires.
4. Principle of Sufficiency and Gratitude
The contrary to sufficient is insufficient, which literally means insufficient. We are influenced daily via media, advertisements, and social networks, and we don’t have enough; thus, we need more. No matter what, more money, better cars, more fun, and higher pay jobs. Whether poor or rich, there will always be someone with more money, so you will always have to keep trying to get more.
But rather appreciate what you have already received (talents, family, skills, possessions, or health). It is not a principle of giving up or not attaining dreams or not building talents and skill sets. It is more about creating a perception towards increasing the level of satisfaction with what is already in possession.
Practicing an attitude of thankfulness for what you have daily will do wonders for your financial outlook in life and financial responsibility.
5. Principle of Prioritizing
What proportions are being saved for a car compared to that for college? Should you spend your saved money on that particular class ring or use that money to start buying a laptop for school?
This is where one has to learn to consider which, among the many important things that need to be done, is most important at any given time. It is recommended that you get closer to the ideal of the financial value system and adapt it to your individual needs. Some of the changes you have to get ready for in terms of having and changing goals include developmental stages such as childhood, student life, single adulthood, marriage, parental stage, stage of being an elder without young ones at home, and retirement age.
The common citizen cannot afford an absolute income guarantee, so the money must be spent wisely. Success at budgeting helps you know what type of life you want to lead and leverage points where you can scale down if you are experiencing difficulties meeting your financial needs. Those additional savings will help you better deal with the unexpected things that may come your way later in life.
Some of the important things to consider are:
- Creating an emergency fund
- Saving for college
- Stipends for future reproduction of automobiles, utensils, and so forth.
- Purchasing a home vs. renting
- Saving for retirement
- Getting out of debt
- Think of the challenges of providing for your parents when they are old
6. Principle of Working
The principle of working is one of the aspects that a parent should start instilling in a child at an early age, but as we first begin to notice the value of work, it is during the teen years. Rather than merely performing chores for the regular motivating factors of the threat of further chores if we don’t or the promise of ice cream if we do, we learn that earning our own money makes life seem more liberated.
From this, we learn that as teens, work equals money, and money makes more choices possible. Thus, work provides its subject with financial independence. This may help adults to remember, even as they watch the world add complexities to growing up, that it is nonetheless true. Each day, we strive to stay out of it – to stay out of a slave chain that makes us live lives other people want to live. Silly decisions with money will likely make them become their puppets to the creditors, but work remains our savior.
The principle of work is not limited only to earning money, though. It teaches responsibility. In general, the result of work is more highly regarded and valuable. Although no pay is involved, work gives this innate understanding that one was productive in a particular work. The idea of accomplishment could be so potent and emphatically optimistic that it becomes addicting.
7. Principle of Avoiding Unnecessary Debt
Debt is a type of borrowed financial capital that enables someone or some organization to spend more than what he or she/owns or has received in the form of credit. Lending is good or bad, depending on certain circumstances surrounding it.
Overall, I agree with the statement so much that I would like to go a notch higher by saying that nobody should go into debt just to buy something that one does not require. Well, if that is a bad habit, let me tell you something else I don’t think is good for one. So, you should budget for what you desire so that you can pay for it in cash and not through store credit, financing, or consumer loans.
Credit Cards
Contrary to what some people think, I do not think that credit cards are bad per se, but they are NOT for everyone and especially NOT for children and young college students. As long as you are not silly enough to misuse it, a credit card is just like having a checkbook, where you record each credit card charge just like you record in your checkbook and pay your balance every month to pay the whole amount. Credit cards, in the same way as debit cards, do not swipe on things that you don’t have cash for.
Student Loans
Perhaps an education loan that assists you in paying college expenses is required. A college degree may let you earn more money per month or find the opportunity to work for what you are interested in. However, those student loans are definitely not friendly once you leave school.
Buying a Home
Selecting the wrong home or being in the right home at the wrong time can turn out to be one of the biggest blunders anyone can make out there. Everybody wants to own a house, and as long as your payments are low enough and you have researched it, you can feel fairly liberated.
8. Principle of Tracking and Budgeting
A frugal lifestyle (spending less than you earn) is how to avoid getting trapped in the debt cycle and be financially secure. There are at least two easy methods, tracking, and budgeting, that can assist you with controlling your spending.
Following one’s cash flow, the amount of money you earn and the amounts you spend daily, weekly, monthly, or yearly is a sound money management practice. An accountability item may be a small memo notebook, a mobile money tracking app (i.e., Mint), a spreadsheet, or computer software (i.e., Quicken) that downloads transactions from your bank and credit card accounts. The second reason is you must track it because WHERE your money is going and HOW MUCH you have on hand is the fundamental concept of money management.
A money management plan involves erasing any debt and identifying where it will go once you have it. If you do not wish to refer to your plan as a ‘budget because ‘ the word turns you off, you might refer to it as ‘The conscious spending and saving plan. As you put together your new plan or as you update your plan, use the principle of prioritizing to guide your decision of what to do with your money.
9. Principle of Preparing
Personalization also encompasses measures one takes to ensure against certain events that are inevitable in life.
- Emergency Fund: One of the greatest objectives that a family should have is to save for what I refer to as ‘rainny day money,’ which is cash and all forms of liquid which you can use in real emergencies such as undergoing major surgery (for instance appendicitis) or when you’re out of a job. The normal objective is accumulating enough in this fund to pay for your family’s living expenses for 3 to 6 months without a job. Essentials are not car repairs, a 12-month-old laptop, higher electricity and water bills, or recurring annual expenses. You must provide a special budget for annual and variable costs and keep the money in a separate account besides the emergency one.
- Insurance: Insurance is a business that aims to make one safe or provide protection against large calamities. Some kinds of insurance are essential, there is no getting around it. These include medical insurance, auto insurance if you own a car, house insurance if you own a house, and life insurance if you have family dependents. There may also be other types of insurance that might be useful in your case (fire insurance, flood insurance, professional indemnity insurance, disability insurance, and so on).
10. Principle of Frugal Living
Simplicity, on the other hand, is about moderation and using available resources. The pecuniary type of a man can also be said to be moral. That is, a thrifty man is a prudent man, not necessarily a shrewd or cunning one.
If you have restraint, you will not buy things you don’t need, will not envy the neighbors, use coupons and other tips, and will learn to love what you have.
If you have not been resourceful, you will find ways of making what you have last as long as it is reasonable. That implies a wise man can save his or her portion by learning to repair items instead of buying new ones or paying others to fix them.
This can easily be overstated, and it is possible to try to cut corners too much. Perhaps, it is unwise to dress in a suit that has some patches sown on it for work. It is not rational to live an unhappy life while avoiding change in order to save a couple of bucks. So, if you are not a plumber by profession, it is advisable to learn some ways of avoiding requiring the plumber’s services too often.
11. Principle of Simplifying
You may never have encountered this as a principle of individual money management, and maybe you do not subscribe to it. But it is a principle that I very much support. It is a principle that ranks high on my list of principles. Frankly, for me, simplicity is the ultimate style. It is obvious that simple ways are the best way as they lead to productivity, high understanding, and low stress.
Staying clear could be beneficial if you don’t know how an insurance annuity works. Day trading is both complex and volatile, so spare yourself undue stress by just not even attempting it in the first place. As a result, stick with work, saving, expenditures, budget, and the other basic philosophies. If you cannot understand an investment type, do not engage in it; focus on something else to do with your money.
Whenever designing my spreadsheets or other devices, I always want to make it in the easiest form that one could use. That’s why people become easily lost and amazes by the details, that’s why I make as much as possible simple. However, I also realize that spreadsheets aren’t the easiest tool for everyone, which is why I always advise other related software.
12. Principle of Investing
Investing is the most crucial principle and is also not equal to saving money. This principle can be described as making money work for you. From the financial perspective, investing means searching for a mechanism through which your capital can produce income (in various forms such as interests, dividends, and rents) or purchasing a financial asset that appreciates over time to make a profit on resale.
In addition to knowing about the different types of investments, a basic understanding of investing requires that you understand:
- The issue of the correlation between risk and return
- The impact of fees and taxes on various forms of investment and investment portfolios
- The three important strategies that involve investing in equities include diversification, asset allocation, and dollar cost averaging.
- A broker can mean just that the person is a licensed and registered agent acting as an intermediary on behalf of a client. At the same time, fiduciary refers to a relationship based on trust where a person works on behalf of another client and owes the client complete loyalty.
- Some things one should never forget and some level of emotional self-control to be observed
- Investing and speculating are two things that depend mostly on the intensity of the risk that an investor is willing to take on.
- Classification of Assets and liabilities (What is your home)
- It is the result of compounding and the time-value of money The relationship between the power of compounding and time of earning the money actually means the time-value of money.
- The examples of liquidity and risks of implement and different types of implement, There areší riskové exposing different implement types.
- Forces like inflation, supply side and demand side, interest rates, etc, everything that has to do with broad economic forces.