I talk about systems and process more than anything, as it pertains to money. I also think that it’s important to have a basic set of “rules” when it comes to personal finance. Not necessarily rules, but what some would call principles, standards, or disciplines. In other words, a set list of guidelines that you don’t deviate from, if possible.
Without further anticipation, let’s look at four principles for money that will give you direction in your personal finance today and in the future.
1. Spend Less Than You Make
Obviously, right? This one is harder to grasp for most people than you’d think. We live in a world where we glorify living “high on the hog,” but rarely do we glorify “living below your means.” We could talk for hours about the thousands of reasons why this is, but let’s talk about the blaringly obvious reason: it’s not that exciting to live below your means.
There’s a certain dopamine rush we get from buying something we can’t afford. Others may have anxiety about it-- a dopamine rush in its own right. Nonetheless, simple human biology tells us that we naturally are drawn towards spending, not saving.
A few basic tips on countering this instinctive act:
- Pay yourself first
- Audit your budget
- Avoid unnecessary debt
2. You Need an Emergency Fund
Yes, I’m a broken record when it comes to the emergency fund. But until every single person I consult with has 1.5 to 3 to 6 months of spending set aside for a rainy day, I’ll continue to drive it home with my audience. Also, I understand it’s dying money. Due to inflation and bank rates alone, your money in a savings account loses value, daily.
That said, it’s more important to have that dead money set aside for an emergency than to go into debt when you have an emergency. Cash flow is king in business, investing, value, and yes, even personal finance. You cannot move forward if you’re going into debt every time that something unexpected pops up.
People don’t hold onto credit cards because they like their monthly payment—they hold on to them in emergencies, which is certainly a strategy, but not a winning one. Bystanders can make the argument that this is a viable option when it comes to your emergency fund, but it’s a bad one. Money requires accountability and discipline, just like fitness—don’t skip this step.
3. Run Your Own Race
My mom has always given me a lot of great advice over the years, but these particular words always meant so much to me:
“Other people don’t pay your bills. Who cares what their opinion(s) are?”
It’s true—how, when, why, on what you spend your money on—or don’t—is of no concern to anyone but yourself. On the flip-side, how, when, why, and on what other’s spend their money on is none of you concern.
Don’t get caught up in what other people are doing, where they are vacationing, the kind of car they drive, the level of income they’re at, or how nice of a house they own. Chances are, you have little to no context of how they achieved (or didn’t) their money or belongings and it’s none of your business what their day-to-day finances are.
After all, as a consultant, I’m required to not disclose my client’s financials to others—why should you get the green light to find out what someone’s financial situation is?
Furthermore, have some accountability to yourself. If you want a certain car or house or vacation, find a way to get it. Don’t spend unnecessary time on things you can’t control, like someone else’s finances. Worry about your own money—you’ll be happy you did.
4. Budget
Another broken record, but one that will always be a classic. Don’t underestimate the power of a solid budget. Most people aren’t on one, but need to be in a big way.
I’ve said it time and time again but the most successful businesses in the world are on a strict budget. Although it may be on a different scale, the rules are still the same when it comes to a budget—you’re only ahead when you’re budgeting to zero in offensively minded way or have leftover cash flow.
Keep in mind that your budget isn’t always stationary and should be revisited on a month-to-month basis, revolving around your money goals. A strong, focused budget will always win in the long-run and you’ll be happy you had a legitimate plan.
Wrap up
The purpose of this article was to point out four principles that are very much universal. Sure, we can argue about investment accounts or asset allocation all day, but the most important facets of a financial position are the basics.
We emphasize the basics at Lyvfin because so many people are trying to hit home runs, when in reality all they need is a better on-base percentage. With that, step up to the plate and focus on singles. The show may not be as exciting, but I promise you the score at the end of the game will tilt in your favor nine times out of ten!
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