Managing your money and personal finances is a skill many don't give enough time or attention to master. The more the subject of financial planning comes up in conversation toward others, the more we realize there's a large portion of people who aren't as financially literate as thought.
What's disappointing is this doesn't come as a surprise. The biggest shortcoming of today's education system is the lack of curriculum on how to manage your money to make the right decisions for your future.
One universal rule that’s paramount to your financial future is:
“In life, it’s your ignorance that costs you money.”
The less you know about your money, the higher the risk of losing it. This mantra applies to both those of high net worth and those who live by humble means.
More often than not you hear about very wealthy individuals who have spent all their hard-earned money in a very short time span. The root of these financial downfalls is a lack of financial literacy.
Wealth is no substitute for financial wellness. Many find themselves committing financial fouls and squandering much of what they’ve earned. For example, consider the financial cycle of many professional athletes, frequently earning millions of dollars per year.
On the contrary, if you're part of the middle-class or low-income, making the small change of wise money management can impact your financial life in a big way.
Implementing these four simple principles will give you an advantage your future self will thank you for.
1. Pay yourself first
“A cardinal rule in budgeting and saving is to pay yourself first. Once your paycheck hits your account, wisdom has it that you should move some amount to savings even before you pay the bills.” - John Rampton
Today's education system neglects financial literacy, which should be part of any core curriculum. Many aren't given the necessary tools to avoid the trap of succumbing to a consumer society. This consumerism mindset pushes you to spend your paycheck on "stuff" that are "wants" and not needs.
By the end of the month, you realize you have no money left over to put in your savings account.
The best strategy is to automate your savings, so you always pay yourself first.
You’ll forget about the amount you’ve saved, and you’ll have to make sure you live with the money left over to pay your bills and enjoy your life.
2. Save for a rainy day
“Do not save what is left after spending but spend what is left after saving.” - Warren Buffett
When you pay yourself first, you’ll accumulate a lot of savings without even realizing it.
With access to readily available savings, you're prepared for any unexpected financial hardship.
This strategy will also help decrease your spending habits.
By paying yourself first, saving money becomes a guarantee, and you'll only spend what's leftover.
It's tremendously easy to automate this approach. The greater issue is few take the time to utilize it.
3. Live below your means
“He who buys what he does not need steals from himself.” - Swedish Proverb
Today's consumer society we live in is doing everything possible to ensure we keep spending more and more money. Advertisers are becoming more creative in capturing your attention with new products and deals to drive up your purchases.
But if you take a moment to reflect, you’ll realize you don’t need to upgrade your iPhone every year or buy a new outfit for every weekend.
Taking the time to zoom out on your financial life, you’ll see you're purchasing more wants vs. needs.
To avoid stealing from yourself, you must start living below your means. Applying this principle will enable optimal financial wellness.
4. Avoid getting into debt
So many people abuse their credit cards and ruin their financial life by accumulating so many.
What's worse is the majority of these credit cards are acquired for meaningless purchases.
This type of consumption, which causes you to accumulate more and more debt, puts your money at risk. This problem doesn't discriminate between rich or poor. The more money you have, the more you will spend with this mentality.
If you want to buy that new iPad, save your money. There's value in hard work. You’ll realize once you've earned that money, you’ll find it much harder to spend. Debt provides a feeling everything is free, and that couldn't be further from the truth.
Make today the day you start to develop your personal finance skills.
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