Personal finance—you can’t live without it! Literally! Money runs our lives. I don’t mean that in a bad way, but in a matter-of-fact way. We need money to survive. We need money to enjoy our lives.
Everything has a cost. It is what it is! Since we can’t escape capitalist society, it’s important to put ourselves in a position to master our money. This starts with a few key principles of personal finance that everyone should be following.
If you haven’t read The Richest Man in Babylon yet, I would highly recommend it. It was one of the books that changed the game for me financially. It also breaks down need-to-know financial principles in the form of stories.
Today, I’m sharing 6 key financial principles of personal finance that you’ll want to know. Check out that book for even more!
6 Need-to-Know Principles of Personal Finance
#1 Always save a portion of what you earn
Have you heard of the saying “pay yourself first”? The principle requires you to put a certain percentage or amount of money into savings as soon as you get it. The typical rule is 10%, but that’s not always possible. Find a number that’s safe for you to put away every time you get paid.
Eventually you’ll want to work up to the 10% number, but if you have debt or a tight budget, anything counts. The goal is not to touch those savings unless there’s an emergency. You always want to give yourself some funds to fall back on.
#2 Never borrow more than you can pay back
Having credit available is so dangerous. It gives people a false sense of financial security. Unfortunately, that “security” comes at a high cost—in the form of interest. Borrowing money isn’t always a bad thing, but you’ll want to make sure you never borrow more than you can pay back.
For example, say you want to fix your AC unit and you learn it’ll cost you $2000. You have the money in savings, but there’s an option to finance at 0% for 6 months. You can take the option to finance because you know you can pay the debt off in 6 months (thanks to your savings). You can also keep your cash flow and not have to worry about paying interest.
#3 Insurance is your form of managing risk
Sometimes I hear people complain about having to pay for insurance. I think it’s because they don’t understand what it really is. Insurance is a form of managing risk.
This means that if you were in a car accident, your car insurance would cover the cost of damages or a new car. Having car insurance mitigates your financial risk in the case of an accident.
People don’t like to pay for insurance because no one expects an accident to happen. That’s foolish. Now, I’m not saying to constantly be worried or negative that bad things will happen, but things out of our control are inevitable.
Knowing that you have insurance to help you through unexpected events can help you avoid being worried about the financial burden.
#4 Good things come to those who work
Nothing worth having comes easy. If you want a life of financial freedom, you have to work for it. That’s not a bad thing! I know we live in an instant gratification society, but there’s value in the grind, and in working for something that means so much to you.
I always tell my clients that they’re putting themselves in a position to succeed by working with a coach. Not only will they learn and do things that will help them get ahead, but they’re instantly creating more opportunities for success just by being in the headspace of working with a coach!
Don’t be afraid to work, and don’t expect things to always come easily. Good things come to those who work for them.
#5 Financial success never happens overnight
This principle of personal finance piggybacks off of the last one. Because good things come to those who work, it means that time and sweat equity are key for financial success.
That means it won’t be an overnight process. Again, that’s okay.
There’s beauty in the journey. There’s beauty in the growth that comes with working towards something like financial success. You learn so much about yourself and the process along the way. Be okay with the length of time it will take and embrace the steps along the way.
#6 Money is always available
For those of you with a scarcity mindset, this may be a hard principle to grasp. Definitely read Understanding Money Scarcity and How it Impacts You for more.
The principle that money is always available means that you can always get out there and make more money.
There is not a limited supply of money—there’s an endless supply. Sure, it’s not going to just fall in your lap, but you’re capable of getting out there and making more money available to you. When you start to live by this, you’ll find more and more money makes its way to you.
Related: 9 Ways to Manifest More Money Into Your Life
Follow the principles above and you’ll never feel like financial success is unattainable! Not all of these principles will happen quickly, or it may take you time to work towards them…and that’s okay!
Make it a point to always function under the knowledge of these principles and you will thrive! Do you follow money rules or principles? Share them with the community in the comments section below!