In the previous article, we found out the first three money principles that we found from the US government site called My Money. This site is an online resource that will help people learn about financial education so they live with more stable money conditions.
To recap, here are the principles we discussed in the first part:
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Earning more and maximizing your potential to earn.
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Saving and investing to grow your personal net worth.
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Protecting your finances and setting up back up plans for you and your family.
These three are part of the five money principles that My Money encourages American consumers to implement in their lives. To continue with our discussion, here are the two other principles that you need to live by to help you gain financial stability.
Money truth 4: Practicing better spending habits
The fourth money principle is called Spend – that means have to practice better spending habits. If you got yourself in debt, that is a strong indication that you are not practicing proper spending in your life. That is because you are unable to live within your means.
It is very important that you begin to make smarter choices when it comes to where your money goes – especially when you are sharing your limited resources with your debt payments. You want to put in the most amount towards your credit so you save on interest and you get out of debt as soon as possible.
To help you implement this, here are some tips from My Money and National Debt Relief that you can follow:
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Create a list before you go out on a shopping errand. Stick to that list and do not go beyond it. If you want to buy something that is not on your list, go home and think about it first. In case you really need it, put it on your list for the next shopping schedule.
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Make a budget and spending plan. This will help you anticipate the important expenses that you need to fund throughout the month. That way, you can set aside your money for these priorities and you will know how much you can spend for each category.
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Commit to live within your means. Do not spend more than what you are earning as it will only lead you to debt.
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Use your credit card smartly. You can use it without garnering interest if you pay your balance in full and any new purchases after that will be paid within the grace period of your billing cycle.
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Set up financial goals so that your spending can be done with a general direction. That will help motivate you to stick to your plans and make the sacrifices that you have to make in order to do so.
What you have to understand is that developing the right spending habits will not only help you pay off your debts, it will also help you stay away from it.
Money truth 5: Making smart borrowing choices
The fifth and final money principle that My Money suggests is simply known as Borrow but it also means you have to make smart borrowing choices. In our society today, being in debt is the norm. Almost all of American households have at least one debt. There are big purchases like a home that costs too much money to rely on your own saving abilities. You can alway save up for it but it will take you a very long time to finish. Also, starting a business is an important way for you to grow your net worth but most of the time, we need to get financial aid so that we can get it up and running.
Debt has the potential to be good or bad – depending on how you react to it. Here are a few examples of how you can be smart when you really need to borrow money.
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Only borrow what you need. If you want to buy a home and the mortgage officer tells you that you can borrow a million dollars, you should not look for a home that costs that much. If you need a 3 bedroom home, find the most economical purchase that you can make without sacrificing what you really need from a house.
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Be careful of credit cards. Make sure you understand how you can use it without incurring an interest and other penalty charges.
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If you borrowed money, create a payment plan that will help you pay off what you owe and do it on time.
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Save while paying off your debts – this will help support your payments in case an emergency compromises your income and the funds for your credit obligations.
Money truth 6: Create a budget
So far, these 5 are the money principles that will help you with your finances. However, we believe that there is a sixth financial truth that you need to live by to make it complete – a budget. This was tackled in spending but we believe that it deserves its own section.
A budget is important because it will help support the other 5 money principles that you need to implement in your life.
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A budget identifies how much you need to earn with the type of financial obligations that you currently have.
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A budget ensures that your limited resources have room for your savings and your investments.
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A budget, through the details of your total expenses will tell you how much money you will need and the different types of protection you have to set up to secure your finances. It will also help you tally the records in your bank account, credit report and other personal finance documents that will help you organize your money.
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A budget will dictate how much money you can spend on every category in your expense list – this will help you live within your means.
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A budget will show you how much money you can afford to loan based on your current obligations and the amount that you need.
Before you can really implement the 5 money principles that was previously discussed, you need to create a budget so that you know the current financial conditions that you have. Find out how to set up your budget, make a realistic one and follow it. That is how you can really improve your financial life.
