Principles. They're what financial planners depend on in order to offer wise counsel. Sometimes principles are simple and straightforward. Other times, they're a bit more complex. Some principles need to be modified, others are timeless. What are some timeless principles that we need to be reminded of every so often? This is a collection of just a few of the most important financial lessons that have changed my life.
1. Keep It Simple
The best financial principle I've run across is to keep it simple. You've heard the saying: “Keep it simple, stupid.” Harsh, but oh so true.
Right now I'm in the process of simplifying everything. I'm getting rid of multiple bank accounts, linking the ones that matter, rethinking my budgeting tactics, and organizing it all with Things for Mac. It's refreshing, let me tell you. There's nothing like simplifying things down to the essentials. Try it out for yourself!
Sometimes the best way to keep things simple is to merely stop adding complexity. Complexity will wither away with time as long as you don't add more of it. For example, if you're prone to switch credit cards to chase the better interest rate every six months, perhaps it's time to stop using credit and merely pay for things with real money! You'll have less bills to pay and you'll have money taken directly from your checking account by using your debit card. Simple!
2. Spend Less Than You Make
We've heard this one over and over again. But the funny thing is, I usually have to be reminded over and over again! It's easy to let a few expenses here and there escape our attention. The ultimate goal is to capture every expense within our budgets so we don't have to ask, “Where did all our money go?” Determine right away how much money you really make in a month, and pledge to spend less than that amount. The greater the gap the better. Take all the extra money you have and throw it at debt, an emergency fund, or another large financial goal.
Try the envelope system. You'll find that it will keep you on track. When the money is gone, it's truly gone! The visual reminder that you shouldn't spend any more money will help you stick with your budget. Now, you don't have to go out spending only cash! Spend cash just on your discretionary items and services. You can use your debit card for the rest.
3. Go Slowly
Whenever you're making a financial move, go slowly. When you're writing your budget, go slowly. When you're shopping, go slowly. Got the idea? Time is your friend. Take your time when you're making any kind of financial decision. I know that the mistakes I've made in the past usually resulted from impulsive behavior. The martial art of slowing down will serve you well.
See that new gadget you must have? Take 30 days to think it over. If you still think you need it at the end of the 30 days, and you have the cash to pay for it, go right ahead! Switching banks? Don't move all your money at once should you forget that you still have several checks pending on the old account. Slow and steady usually wins the race. Rushing to get something done will only make you trip up and cause more destruction than you might think possible.
You don't have to be a financial wizard to get ahead in the world. All you need are straightforward principles. Ask the average millionaire how they earned their pile of cash, and you'll be surprised to find out it was simpler than thought.
What are some principles that keep your personal or business financials on where they need to be? Let us know in the comments!