I‘ve been writing about finance for some time now, and in all my research 3 principles stand out as the most important. You’ve heard these before; the problem is most people don’t take them to heart. If you follow these straightforward rules of thumb, you’re almost guaranteed to become wealthy. Let’s start with the one at the top of my list – living on less than you make!
The Three Principles
1. Live on less than you make – really this time!
Leases, car loans, mortgages, student loans, personal loans, credit cards, what did I forget? Our financial system has invented every way imaginable to charge money for using money we didn’t earn. The interest rates are utterly ridiculous. How is it that so many people can get caught up in spending more money than they make? Some may argue that they pay off their credit cards and don’t spend more than they make. But if you’re spending someone else’s money, isn’t that spending money you don’t have? It’s a dangerous game.
Keeping a budget is key to spending less than you make. Obviously, the first step is to determine how much money you have coming in. If you have a variable income, this can be rather difficult. Start by looking at your historical income. I recommend looking at at least 6 months of history if not a year. Take the average monthly income and spend less than that per month. For example, right now we spend approximately 80% of our average monthly income. The rest of the money goes into whatever major goal we have – in our case, Dave Ramsey’s Baby Step 3.
2. Your financial behavior is more important than the mathematics.
It’s true. Too many people are concerned about how much interest their checking account provides rather than looking for ways to raise their income through hard work. Hard work first, perks second! Your behavior affects your pocketbook more so than the light mathematics can.
Get intense. The best way to responsibly manage your finances is to become zealous and have a plan. Don’t worry so much about the math – it’s not so much about head knowledge, it’s about pursuing an objective.
3. Emergencies happen – plan on it!
The third financial principle is a biggie. Emergencies take place, and it is crucial to have an emergency savings account labeled “For Emergencies Only.” If unexpected medical bills pile up, you’re going to need a buffer between you and life. This is an important part of your financial vehicle that is taking you where you want to be.
- Long-term Care
- Homeowners or Renters
- Identity Theft Protection
Listen To Those Who Have Been Successful
You’ll find that many within your family who have been successful with money have adhered to these principles. Do you know someone who has done well financially? Sit down with them over a cup of coffee and ask them how they keep a grip on their finances. What do they do in their everyday living that helps them win with money?
I’ve had the opportunity to meet with many successful people – people who are where I currently want to be. Teaching me their methodologies for success, I’ve become closer to reaching my goals and can taste freedom. Never underestimate the power of a mentor.
What are some of the great principles that have kept you afloat in times of emergency? Or, what has propelled you to the success you have in your finances? We’d love to hear from you! Tell us what are some of the financial principles you have depended on. Meet you in the comments!
Last Edited: 8th September 2010