After reading many books, hundreds of blogs, and hundreds of financially related websites I have come to decipher the 4 basic principles of personal finance.
The 4 Principles of Personal Finance:
These 4 principles of personal finance when explained further can really show the impact of mastering these towards your financial benefit.
Patience: Have you heard that having patience is a virtue? Well this goes to show that those who have it can avoid spontaneous purchases and live life on the, things can wait mind frame. If practiced right patience can help those people avoid debt and avoid living beyond means. If you are already sadden by debt, then you will obviously need patience as well to get out from under it. It will take you a from a few months to a few years with an average income to pay off all debts. The average credit card debt of 7,000, the average school loan debt of 26,000, and the average car debt around 12,000 I know it can be a major hurdle to get over these figures.
Planning: A man without a plan is a man lost at sea. I think I read this once somewhere, but I fail to remember where I did. The core aspect of any project is to plan before acting, this goes as well for the financial journey that will take you to freedom. Why wait 50 years to then begin with a plan, when you can start it in your 20’s and be ahead of the game. I fail to comprehend what kind of mentality people have when they say, retirement is so far off. It is like listening to somebody who speaks a foreign language. Dude you need to get the compounding started a.s.a.p.
Pre –Tax: One of the easiest ways to get a head start in becoming financially independent is to fund all pre – tax accounts as early as possible. The pre – tax accounts will give you a tax break now and with the premise that you will be in a lower tax bracket later can save you a ton of money. The most common account for most people is the 401K account. Most employers offer a matching and the opportunity is tremendous to achieve growth. I have always done the pre – tax accounts first before doing the Roth accounts (After Tax). If you could fund both to the maximum then you will be above average with savings.
Production: When the right money plan is in place you will have an influx of income from assets you have built up your entire lifetime. Why have an investment if it is not producing cash or the possibility of future cash flow? The objective here is to set up and grow diversified streams of cash flow from the sum total of all investments.(Pre-Tax and After Tax) I think that is a great idea, because it is vital to separate a percentage of assets towards all forms of investments. The point is to have all the separate investments giving you enough production of cash equal to your annual expenses. In an ideal world the assets should account for more than your desired level of living expenses, then you can allocate some resources to pad the nest egg in case of emergencies.
Consider these 4 principles of personal finance because realistically it is the right way to watch your money. If you watch it right, you can grow it and then have freedom for living life your way.
Comment if you understand the 4 principles of personal finance?
Rich Uncle EL