When it comes to our personal finances and the financial planning process, there is a lot we need to know to help us better prioritize and manage our money.
There is also an abundance of resources available that focus on financial literacy and money management principles. Some of these resources are helpful while others contain terrible “advice”. This makes it hard to determine what is actually relevant.
One of the more abundant topics covered in these resources is around personal finance principles that you should be adopting personally. But how do you know if these “principles” will end up working for you, too?
Not everything is a one-size-fits-all solution. More often than not it comes down to a bit of trial and error. What seems to work for someone else’s finances might not work for you.
With this in mind, we took the first step for you to separate the good from the bad. We’ve had a chance to talk with several personal finance authorities to get their take on some of the personal finance principles they have been using for themselves, and ones they think others should adopt.
We received valuable input and direction from each of the following money experts:
- J. Money (J$), JMoney.Biz (recently sold Budgets Are Sexy)
- Todd Kunsman, Invested Wallet
- Nick Carroll, DollarOtter
- Ryan Luke, Arrest Your Debt
There are a lot of things that you could be doing at any stage of your life, but combining the counsel from each of these experts, we were able to piece together financial principles that are easy to understand and easy to implement. These financial principles are as follows:
- Track your net worth
- Always pay yourself first
- Don’t compare yourself (your finances) to others
- Budget consistently
- Live within your own means
- Always set financial goals
- Spend on value (Value-Based-Spending)
Track your net worth
Tracking your spending and savings is beneficial, and we’ll get to that later on in this article, but tracking your net worth provides additional benefits.
J. Money of JMoney.Biz (previously Budgets Are Sexy) explains that tracking your net worth gives you a better snapshot of your progress over time.
“The one thing that’s helped me more than anything else with my money, is tracking my net worth.” He continues, “All the budgeting and hacks are great, but if at the end of the day you can’t see your progress it’s very hard to stay motivated!”.
“Running your numbers every month gives you a GREAT sense of where you’re at and how far you’ve come over the years… It’s like a diary, but for your finances ;)”
We also think net worth is a great indicator of financial health and progress. One of the many benefits of implementing your financial plan with Savology is that we help you quickly calculate your net worth and identify ways to improve it over time.
Pay yourself first & don’t compare yourself to others
When it comes to your money, you have to remember that it’s exactly that. It’s YOUR money. Having the mechanisms in place to make sure that you remain a priority is important, even though it may be difficult at times.
Todd Kunsman of Invested Wallet shared his view on what are arguably two of the most important principles that should always be remembered.
“Paying yourself first is such a simple concept, yet many people (even including myself early on) seem to ignore it or never think about it. I first read about this concept in Rich Dad, Poor Dad and it changed my mindset about money.” He goes on to mention that, “By paying yourself first, you are ensuring money goes towards your investments or savings before anything else.”
Paying yourself is so simple in principle, yet it can be difficult to manage if your priorities are not in the right place. This leads us to the next piece of advice from Todd.
“When it comes to money, it’s important not to compare ourselves to others. By this I mean, don’t worry about what other people have or are buying.” He concludes with, “When you try to keep up with others, or feel like you need to match their lifestyle, it keeps you broke. Going into debt or having no money just to feel like you’re on an even playing field is a disaster for your finances.”
Over spending just to keep up with the Joneses can make it difficult, if not impossible, to keep your savings in the bank.
Budget consistently and live within your means
It’s no surprise that budgeting made it into this article because of the impact it can have on your finances.
Nick Carroll from DollarOtter breaks it down for us. “With 59% of Americans living paycheck-to-paycheck and the average credit card debt being carried is over $8,000, U.S. households have forgotten the importance of living within their means.” He continues by saying, “By having a budget implemented into one’s regular practice in managing money, families can start telling their money how to work for them instead of the other way around.”
Lastly, Nick says that “Budgeting is a simple money management principle that households need to get back to if they wish to achieve financial freedom and live the life they’ve dreamed of.”
Set goals and spend with value
When it comes to mapping out your financial priorities one of the best things you can do is set goals.
Ryan Luke from arrestyourdebt.com implements this himself and shares the advice with others around him that are looking for financial guidance.
“Goal Setting is necessary in order to give you a purpose and mission for your money. Without goals that are S.M.A.R.T. (Specific, Measurable, Achievable, Realistic, Timely) people can quickly lose motivation, purpose, and direction in their finances.” He continues, “Losing focus can lead to overspending and spiraling into uncontrollable debt. Goals help people stay on track by ensuring they stick to a budget and remain motivated on their personal finance mission.”
Even with financial goals set and a proper budget in place, spending your money is a natural habit. But when it comes to spending, Ryan has a unique principle that he lives by to help him spend his money on things that count. This is called Value-Based Spending.
“Value-Based Spending means that each penny you spend should add significant value to your life. If you are spending out of habit rather than purpose, a value-based spending thought process will help individuals refocus and cut back on the routine and unnecessary purchases we make.”
Finally, he ends with, “By putting our money towards things and experiences that bring us value, we will better manage our money and our finances.”
Put these finance principles to action
Personal finance doesn’t have to be complicated. Often times, it’s the small steps that compound to end up making a big difference in the long run. It’s important to get started with developing a foundation of personal finance habits, values, and principles like these that can lead you towards financial success.
Your financial future starts today
Savology has helped tens of thousands of households across the United States improve their financial well-being by providing comprehensive digital financial planning. Users can get started with our free financial planning or premium monthly planning memberships, allowing them to build a personalized financial plan, holistic report card, personalized action items, and more. In addition to our consumer-facing platform, we’re helping employers across the country provide their employees with effective financial wellness benefits.