4 Simple Money Principles To Financial Fitness In Under 4 Minutes
Editor’s Note: This new series on Financial Fitness comes from personal finance expert, and SoFi content partner, Dr. Tony Pennells, founder of The Freedom Club. Using proven tools and systems, Dr. Tony demystifies “financial freedom” with common sense solutions to help people create true wealth (the type that makes money that you don’t have to work for!). Click here for earlier stories in the series.
Before you can create your plan for becoming financially fit, you must understand the Four Money Principles. These pillars are the foundation of everything The Freedom Club preaches! And we at SoFi are in full support. Even if you’re well on your way to financial fitness, it’s always worth a few minutes to revisit the fundamentals. If you don’t master the Four Money Principles, your chances of ever becoming financially free (or Independent) are dramatically reduced!
Four Money Principles: 1. Paying Yourself First
It’s amazing to me how many people don’t approach saving correctly. Too many think, “I’ll pay this bill and that bill, and if there’s anything left over, I’ll put that towards my financial future”. WRONG! All too often you’ll end up with nothing left at the end of your endeavors except for even more conviction that there is no way out of your money woes.
Recommended: How to Prioritize Savings Goals When Paying Down Student Loans
Find a surplus from which you can pay yourself first. Think there’s no room in your budget? Think again! There’s almost always wiggle room somewhere. Try installing a programmable thermostat (Nest is great), lowering your minutes on your phone, or using your slow cooker more! Even if you start out saving just $5 a week—you’re still saving!
Four Money Principles: 2. Living Within Your Means
Where does your money go each month? Do you find yourself at the end of the month wondering just what the heck happened? In order to become financially fit, it’s vital that you step up and control where your money goes rather than your money controlling you.
You should determine exactly what money is going where at the beginning of the month and know exactly what will be left over at the end. Combine this with the concept of paying yourself first and you have a powerful tool for not only reaching financial independence more quickly, but also for reducing your anxiety and worry. If you know where your money is going at the start of the month, you don’t have to spend time worrying if there will be enough!
Four Money Principles: 3. Protecting Yourself
Living paycheque to paycheque is like walking a tightrope over the Grand Canyon. You can do it, but you have to maintain a delicate balance that is unsustainable and leaves you constantly on the verge of falling to your doom. In order to give yourself a break, it’s important to set up a safety net so that if you lose your balance, you won’t fall too hard.
Related: Where Your Money is Going — How to Minimize Wealth Management Fees
Of course, we all hope nothing bad will happen in our lives, but it’s always better to be prepared. Set up a cash buffer of at least three month’s expenses or more if possible. Insure your possessions and your family against calamity, so that when challenges occur, you’ll be ready.
Four Money Principles: 4. Making Your Money Work for You
Making your money work for you is the final step toward financial freedom. You should plan to fund at least 25 years of retirement life, and you can’t depend on the government to take care of you. No matter how old or young you are, you should be growing your money through investments. And through the “magic” of compound interest, this is exactly what you can do.
Follow these four money principles, and you’ll be on your way to financial freedom in no time!
Choose Freedom!
Dr. Tony
Editor’s Note: This article originally appeared on our web partner’s site, The Freedom Club.
More From Dr. Tony:
All your finances.
All in one app.
App Store rating
Good principles, but #2 has nothing to do with living within your means. Knowing where your money is going is very important, which is why I try not to use auto pay, but #2 should be re-titled or rewritten.