Monday, November 11, 2013, AM | Leave Comment
When you’re earning an income, the principles of personal finance ought to concern you. There are no secrets but just plain simple exercise of certain steps that you should take. I’m sure everyone knows these principles but let this post be a reminder to all to follow if you want to be successful financially.
The three basic but important principles of personal finance are:
Raise savings by lowering expenses
When you spend less than you make every paycheck, obviously you’ll save, even if it’s $5 a week. If you keep doing it every paycheck, imagine you’ll have more than $500 in a year. That’s money you’d never have if you didn’t save.
A good step is to watch your spending. You don’t wanna overspend your paycheck. Slowly but surely by the end of the year you’d have a good chunk of money saved which by the way you’d never have if you didn’t save.
You ought to have Liquid Asset
Liquid asset is not cash per se but can be converted into cash quickly in case you need it. The cash received should be the same, at a minimum, as you originally bought the asset with if not some amount over.
This is essentially to prevent you – the spender – to spend the money right away. Because it’s not cash and is not available to you on the same day you need it, it’s a good practice to have liquid asset.
Unexpected expenses arise when least expected. Rather than sell your investment to have cash on hand, it’s better to have liquid asset that can be converted into cash in a couple of days without losing a penny.
Make long-term investment
Whatever money you have saved, put it all or some part of it in brokerage account for investing. Remember to do your research as to what industry you should invest in. In any case, invest for the long haul.
Research and find good and solid businesses and start investing in them. Take advantage of dollar cost averaging.
Some folks call it wise investment. In essence, it means finding solid business to invest in for the long haul. More importantly, don’t panic in a bear market. If you’ve researched and invested in good businesses, that will bound to come back and give you good return.
Wise investment also includes a solid life insurance policy, saving for retirement enough so you’re eligible for matching funds from an employer which is your extra saving and is free money. You definitely don’t want to forfeit that. Forfeiting matching funds from your employer would be like a fine or penalty you impose on your finances.
All three principles work together…
All three are discreet principles but they are in a way dependent on each other. You can’t save if you don’t have regular income and you can’t have liquid asset or investing if you don’t save on a regular basis.
All three principles work together even at times they may seem like separate entities.
Always have extra money saved…
You never know when your car breaks down, you should have some money available to fix it – parts and labor. If you use your credit card to pay for the repair, you must be able to pay your bill before the due date.
Following the three principles can save you from drowning in debt
By following the three principles, you will avoid getting into drowning debt, period. Debt that can give you an eventual positive return such as buying home – it still is a good investment – cannot be considered bad debt.
By following the three principles, you will be able to pay your credit card bill in full every month and before the due date so you don’t incur interest and finance charges.
In a Nutshell
Use these basic yet important principles of personal finance to evaluate your spending and savings to help maximize your personal value.