For anyone looking to become financially independent, it’s critical to understand some fundamental financial principles that can help them achieve that goal.
Although everyone’s financial road map is a little different because goals and experiences are different, there are some financial principles that can help you build wealth over time and achieve financial independence.
Be Patient
Our impatience holds a large influence over our spending tendencies. It also impacts our trajectory towards financial independence. As the saying goes, Rome wasn’t built in a day, and this absolutely applies to building wealth. Don’t expect to be at the finish line the day you start the race. It will take careful planning and time to get to your destination. You need the motivation to begin but the endurance to continue.
Impatience can sabotage even the most well-conceived plan because, along this journey, you’ll get tired, feel like you’re not making progress, and sometimes consider giving up, but don’t. Understand that this is a process, and with consistent, steady action, you’ll build wealth and achieve your financial goals.
Pay Yourself First (save early, save often)
Why are you working and earning money? Is it to make yourself wealthy or to make someone else wealthy? The fact is that when you bring in money, yes, you’re getting paid, but if you don’t keep any for yourself because you spend it all, then you don’t build any wealth for your future. Whenever you pay money to anyone else, whether it’s an item you buy at the store or money spent for a vacation, you’re not contributing to making yourself fiscally rich; you’re contributing to making someone else rich.
This is why budgeting is so important. It ensures you’ll have enough money to pay for the necessities of life, some for your enjoyment and well-being, but also putting some aside for yourself. Try to save some of your money in a regular savings account, CD, Money Market or investment account over time. As it accumulates, you’ll be building wealth for yourself.
Consider the true value of what you buy
Everything you buy has a value to it that is more than just the price you pay for it. Some things hold value for a long time and even go up in value, while other things depreciate, sometimes so fast that you’re buying a new one within the next two months.
Being an informed shopper will help you determine whether the higher-quality, more expensive item is worth the purchase or the cheapest item is the best option.
Some key factors to consider when purchasing are the cost—how much will you pay for it? The quality—what are the materials, and are they long-lasting or disposable? The usefulness—how does this item affect my immediate and future needs? The lifespan—how long will this item last?
There are many instances where buying the cheapest item is the most economical option. But remember that for many things in life, you get what you pay for. Understanding the cost and value of the items you purchase will help you make an informed spending decision and avoid wasting money.
Understand what credit IS and ISN’T
Remember, credit is NOT your money, nor is it your wealth. Credit is the ability to borrow money to buy something now, with the agreement that it’ll be paid back later.
But many people forget that their credit limit and lines aren’t the same as having cash in the bank. Every cent on the credit balance needs to be repaid. Using credit isn’t a bad thing since many people use credit lines for emergency purposes or to get cash back and other rewards programs for purchases. The danger lies in thinking that credit is your cash, and thereby, the temptation to overspend is great.
If you manage your credit cards correctly by paying your balance every month, then you can use your credit for beneficial purposes. Credit is a useful tool that can give you a lot of buying power, but it needs to be treated with respect and care.
