The KEY to making a change is knowledge and that knowledge doesn’t have to be complicated it just has to be executed. Take a look at these 4 simple principles and see where you can make a change.
4 Personal Finance Principles to Live by For a Richer Life
Taking control of your personal finances is key to living a more stress-free and stable life — a truly rich existence. All you need to do is take the first step: start becoming more aware of your bank account, and live by these very basic principals that just about sum up what personal finance is all about.
1. Pay yourself first
This is a common personal finance phrase that many people live by. But what does it really mean? No, paying yourself first isn’t buying anything you want and letting your bills collect dust. Basically, it means that before you spend your new paycheck on necessities or wants, you should squirrel away a portion of it to your savings. Getting into this habit is helpful because you’ll learn to prioritize saving, and the steady stream of monthly contributions is the best way to grow your emergency, savings, and retirement accounts. The best and easiest way to pay yourself first is to automate it so that the process is mindless.
2. Live within your means
Don’t spend more than you can afford to spend. Don’t take on loans or debt if you can’t afford it. This even means being cautious on what is generally considered “good” debt. Ever since the financial crisis, all of us had to reassess what we initially thought of as good debt, which includes mortgage, school, and car loans. Once people started getting laid off and defaulting on payments, the good debt very quickly becomes bad. That’s not to say that you shouldn’t go to the college of your dreams; but you should still weigh the costs while keeping in mind realistic expectations of job prospects postgraduation. And if it’s truly worth your investment, you should find ways to cut costs. Other than not taking on debt, conscious spending is also part of what it means to live within your means.
3. Prepare for the long term and the worst
Don’t spend your time living only in the here and now. Think ahead, and start preparing for your retirement and emergencies by starting an emergency fund and contributing to your retirement accounts.
4. Knowledge is king
Keep reading and keep learning about how to better your personal finances. This is just the start of your journey, and there is so much out there to learn
Financial independence is a slippery idea.
It is hard to define. A simple Google search yields a fantastic amount of, sometimes contradictory, definitions. The best one, in my opinion, tells us that financial independence is when you have sufficient personal wealth to live indefinitely without having to work actively for basic necessities. Financial independence is even harder to put into practice; but it is not impossible. It is much easier when you realize that becoming financially independent and amassing wealth is a slow process that takes time, self-discipline and most importantly a plan. You must be consistent, create good habits to cut your everyday expenses, generate extra income, and put money into some of the following standard investments (i.e., stocks, mutual funds, bond, real estate, etc.) that can be beneficial to you now and in the future. With your time and effort what you are doing is developing a strategic plan that will begin to look like something. So now 2013 is here and you are wondering what steps you are going to take to start your 2013 off the right way to become financially independent with a plan, here we go: Create a plan and make sure you stick to it with. NO EXCUSES! Before you create a plan make sure you understand the difference between Gross Income and Net Income. Gross income is your salary- the total dollar amount your employer agrees to pay you over a given time period. Net income is what you take home- the amount you earn after your employer makes deductions for taxes and benefits. People make a huge mistake of budgeting from their gross income when they should be budgeting off of the net income. You must create your financial plan from your net income. Having a financial road map that is generated from your net income will help you prepare your plan with numbers that will keep you out of trouble and make sure you are not unrealistically assuming you have money that you don’t have. A financial plan based on your net income will also help you figure out how much you’ll need to retire and then help you determine how you’ll hit that goal on a weekly, monthly, and yearly basis. The goal of your financial plan is to look at where you are today and where you want to go. Then it sets out all the steps you need to take to get there: helping you create a budget, track where your money is going and reevaluate if your money is being spent strategically to help you attain your financial goals (being knowledgeable about how every dollar is spent, saved, or invested is crucial for staying on track). You will also need to make sure you understand how much you will need to retire. You can do this by talking with professionals or, if you are like me and pinch every penny, you can use free websites and calculators. You can type “How much do I need to retire” into Google. I believe that when looking to create an effective, efficient and compelling financial plan you need to identify and be specific with your financial goals. Financial goals need to be created using the SMART system (Specific, Measurable, Attainable, Realistic, and Timely). It’s not enough to say that you want to create an emergency fund you need to use SMART and say I want to create an emergency fund and have $7,500 in it by the end of the year by saving $150 out of each paycheck. Being as specific as possible will make your financial plan realistic by putting measurable goals into the forefront of your plan. Not having a financial plan is not acceptable. Remember it is not about getting rich it is about becoming wealthy (on your own financial terms) and doing more with what you have. If you have no plan you have no progress. Not having a plan will create stress in your life. You’ll likely have more worries about money, you may not know where you are today or how to plan ahead, you could even lose control of your spending and fall behind on your bills, etc. So remember you would not take a long road trip without a map. In the same way, you need a road map for your financial future. A financial plan looks at where you are today and where you want to go. Then it sets out all the steps you need to take to get there. I hope the content above helps you start your 2013 off the right way with a financial plan.