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5 Core Financial Principles

If you wont have some core principles by which you manage your personal finance, then it really wont matter how many deals we find. So I wanted our first article to be the best 5 core financial principles everyone should follow to put money in the basket. With out these personal finance tips, your ability to acquire personal long term financial success it hindered substantially.

Avoid Overdraft Fees

A recent study conducted by the FDIC, shows that banks profit heavily from overdraft programs. Of the banks that were included in the survey they showed an average of 74% of their income from service fees were collected from overdraft fees alone. Banks rely on you to overdraft your account to keep their doors open.

You can read the entire study conducted by the FDIC regarding overdraft programs. (http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_FinalTOC.pdf)

Stat a Savings Plan

That is of course if you have a savings account? If you don’t I would HIGHLY recommend starting a savings account as soon as possible.

Have you ever heard of the concept of “paying yourself first”? It’s amazing that individuals who follow this rule seem to experience much more stable long term financial standing. Don’t pay others before you pay yourself.

If you start a savings plan and contribute to it every month, you will be amazed at how fast your wads of cash piles up.

Reduce Credit Card Use

We have 2 major sayings in my house . . . ok I have 2 major saying in my house.

#1 – If it’s not at Wal-Mart we don’t need it! – My wife highly disagrees with this concept.

#2 – If we can’t afford to pay cash for it, we don’t need it.

While at times I waiver on the first concept, I tend to stick to the 2^nd. Credit is a good thing is it’s managed properly. I tend to use credit cards for items that I know I have need of such as gasoline or food. Then I pay the credit card off each month to avoid any interest charges. In doing this I build good credit while avoiding building the snowball effect of interest payments.

Set Limits on Your Spending

Citing the above point, if you can’t afford that fancy new iPod for your kids they probably don’t need it. Need is defined as a requirement or necessity. Think about it, do you need that extra latte every day? Did you really need to super size it? Come on chubby, be honest. J

The average ticket of Starbucks is around $4.71. Imagine if you saved this amount every day for 1 year. At the end of the year you would have $1,719.15.

Which would you rather have a latte a day or a Caribbean vacation all expenses paid for 2 weeks?

By setting limits on your spending and reducing the amount of conspicuous purchases you can really impact your finances in the best possible way.

Visualize Your Net Worth

I recently went to a NAA (National Association for Agents) to hear one of the founding partners (Philip Hudgins) speak to a group of insurance agents. Mr. Hudgins spoke for 1 ½ hours and I have to say I was glued to my seat the entire time. He spoke on the 4 principles of success. While the principles he brought out were nothing new he did make one statement that stood out.

“You have to see your income, before you can make it!”

I feel this is the same for your overall net worth.  If you currently have a net worth of $30,000 then you need to see yourself with the ability to be worth $50,000.

If you can’t see this, then the above steps are futile at best.