Essential Personal Finance Principles

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As humans, we naturally want to earn more money with less effort.

Money is important. We need it to survive, feel secure, experience, and thrive. But for many of us, money is a scary and taboo topic. At least three things contribute to this reality:

  1. The education system does a pitiful job of providing even basic training on personal finance.
  2. There is a cultural discomfort about discussing money, including what we earn, how we spend, and where we invest.
  3. There are many people that provide bad advice, run scams, and charge high fees to take advantage of our lack of education and cultural discomfort about money.

The good news is that we can better navigate this reality by following a few universal principles. There are smart ways to accrue wealth over the long term.  

Below are five essential principles to guide you through the peaks and valleys of your financial journey. These principles aren’t as exciting as investing in Bitcoin or Ethereum. They likely won’t get you a 3,000% ROI over the next year.

While the principles aren’t sexy, they work. And for most of us, that’s exactly what we need.   

1. Invest in yourself.

The more value you add to the world, the more money you will make. When you have unique skills, specialized knowledge, abundant creative energy, and the capacity to accomplish more, you will earn more money. To have these things, you need to invest in yourself. Read and learn daily, take online courses to develop new skills, build your network, and focus on your physical and mental health. These investments will pay off tremendously. Start by reading 10 minutes every day. At that pace, you’ll read 15 to 20 books a year. If you don’t know where to start, you can browse my vetted reading list here.

2. Leverage compound interest.

Einstein once called compound interest one of the world’s most important inventions. Why? Because it’s super powerful. If you invest $10,000 in a low-cost index fund in your early 20s, it will be worth hundreds of thousands by the time you retire because of compound interest. Begin a regular savings program as early as possible and compounding will do the rest. I use Wealthfront to invest my capital. Vanguard and Betterment are also good options for individuals located in the United States.

3. Automate and simplify.

Most people want to minimize the time they spend on their finances and spend more time on the areas of life they enjoy the most. You can do this by creating a simple, automated investment strategy. For example, if you earn $100 per week, you might allocate $10 to your retirement account, $15 to your stock investments, $5 to fund your vacation, and the rest towards weekly expenditures. The important thing is to set up everything so that it is automatic and aligned with your unique financial goals. That way, you know that you are hitting your goals every week and don’t have to think about it. Finance expert Ramit Sethi provides great resources to get you started on setting up your automated financial infrastructure.

4. Create flexibility.

Are you willing and able to tighten your spending on demand? Do you have multiple sources of income? Are you tied to one location?  Having a flexible lifestyle enables you to more easily thrive through the inevitable financial ebbs and flows of life. You can create additional flexibility in your life by learning to live with less, having multiple sources of income, and designing a life where you can move anywhere on demand.

5. Relax.

No matter your level of wealth or success, financial stress will likely always be a part of your life. When you have less, your concern may be about making rent. When you have more, you might struggle to find the best organization to contribute our excel capital to. The bottom line is that everyone wants to allocate their money effectively. Do your best to accomplish this, but also relax. Enjoy life while you have the opportunity to do so.

Invest a few hours in 2018 understanding and developing your personal finance strategy. This is an area of life that is simply too important to ignore. The sooner you get it right, the smoother your financial path will be throughout your life.

If you’re just getting started, you can build a strong foundation of knowledge with one of these three books:

If you’re looking for one-on-one support setting up a basic personal finance model and an automated financial infrastructure, you can contact me at [email protected] with a brief note about what you would like to achieve.

Happy investing!

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