Take a moment to ponder how you would define Financial Success. For some, this term refers to the ability to retire at a chosen age without having any worry that you will lack the resources to live out the rest of your life in comfort and happiness. For others, financial success is becoming wealthy. Still others define financial success as having enough passive income to replace all of your other active income.
Whatever your definition, we are all working toward a given set of goals. Most families are looking for ways to increase their chances of reaching a solid level of financial success. Studies indicate that75% of divorces can trace their fundamental cause to struggles and quarrels over finances. So while families and individuals work to reach financial success, unfortunately lack of communication and understanding work against them.
This being the case, let's take a close look at twelve principles regarding money and its management. If each of us followed these principles, our country and our world would not be in the middle of such a profound crisis.
Before we begin with these principles, it is important that you understand that these principles cut to the heart of our relationship with money. Money needs to have its proper place in our lives and we need to treat it with both respect and wisdom. We must not, however, place money and the gaining thereof as our primary goals in life. Life is much more than a bank account.
Principle #1: Give
As soon as we receive our paychecks or other forms of income, we should designate a portion of it to others. Whether this be in the form of a religious tithe, in the spending of it on charitable items or supplies, or as a gift to an individual or family, this first step with money gives it the proper place in our lives.
We can look at the lives of many successful people in this world who have worked their way to their wealth. Most of these people have placed money in its proper place and have used their plenty to help those around them. As we do the same, we find greater fulfillment and are able to keep priorities straight.
Some might be tempted to skip this principle. We can promise any reader that if this principle is included as a regular part of your spending plan, you will absolutely achieve greater financial success.
Principle #2: Manage Money; Don't Let it Manage You
Far too often, individuals and families wonder if they can earn a lot of money and they focus their efforts on increasing their income. This, however, is ultimately wrong-headed. Most people work for companies and organizations on which they depend for their income. In other words, most people simply don't control how much money they make.
They can control how they spend that money. So instead of asking how much money you can earn, wonder if you know how to manage the resources you have. Honestly reflect on the knowledge you have about interest rates; taking loans to pay for education, vehicles and homes, and whether you have a workable retirement plan.
If you find that you just don't know how to manage your resources well, immediately get the training required. Don't waste time. You must learn to manage your money and pull yourself out of the consequences of ignorance. The lessons and training DebtZero provides can help you with this endeavor.
Principle #3: Self-Discipline and Self-Restraint
Learning and practicing discipline and restraint in regards to money and resources can be more powerful and freeing than accounting classes or a course in debt management. The idea that you control whether you live within your means seems to be out of fashion today, but that doesn't make it any less valid.
As you assess your resources and your needs, you will need to be honest with yourself. You must ask yourself what you need, rather than what you want. Even in times of plenty and abundance, discipline is necessary.
Many people, upon considering their resources and needs with candid frankness, find that they can live quite happily on far less. One family that began using these principles went from living on nearly $4,000/month, which was already frugal, to living on less than $3,000/month. Belts were tightened, but the joy of being total masters over their resources outweighed any disappointment at not being able to buy whatever they wanted.
Principle #4: Make a Spending Plan
The common word for a spending plan is budget,' but most humans don't like that word. It's a lot like a diet: it is restrictive because it tells us what we can't do and it doesn't work! We must switch our thinking to the idea that we should have a spending plan, whether we are on our own or we have a family.
A spending plan accepts that we must spend money. Life costs money. Our home, car, food, education, clothesthese all cost money. If we will identify exactly how much money we must spend on these necessities, we can start to identify other financial goals that are necessary. Goals such as retirement or paying off a house might be identified. These are necessary, so our spending plan will allot a small amount of money each month in order to move slowly and steadily towards these goals, while still paying for our current needs.
Businesses are out to make a profit. Thus, they have a budget. If we are out to make a profit and increase our income, we should have a budget/spending plan as well.
Principle #5: Hard Work is How You Earn
In a recent poll done with American high school students, a significant majority of them said that they expected to be very wealthy as adults. The next question provided options for how they would become rich. Over half of the students polled declared that they would become rich through winning a major lawsuit.
This is a sign of financial illness.
The idea that hard work is how you earn money seems to be fading. Perhaps this is a product of the Information Age we live in, but this perception is wrong, even considering the unusual stories of overnight millionaires. The majority of people will only be able to provide for their needs by working hard.
We need to remember this every day. Disciplined, diligent labor increases our chances of providing for our needs and our family's needs. Teaching children this principle, through example and instruction, should be a priority in families.
Principle #6: Teach Children to Manage Money
Obviously it would be useless to try to teach a five-year-old how to invest, but this child could certainly learn what a certain amount of money can buy. The necessity to teach our children how to manage money, both through indirect example and direct instruction, is great.
As our children grow up, we need to demonstrate to them where money comes from, how it is used, and the value and respect it deserves. This instruction should be age-appropriate, of course, but it should never be forgotten. This instruction, along with principle 5, will help our children avoid the entitlement attitude that is all-too prevalent today.
One thing to remember in connection with this principle is that children will learn best if they are given the opportunity to make money decisions. They should be given opportunities to earn money and save it toward certain goals. They should also be allowed to suffer the consequences of poor money management.
Principle #7: The Family is a Team
This principle applies, obviously, specifically to families. A family wherein the parents are worried about finances but the children continue to expect to have all of their wants met will have a very bumpy ride. Parents need to make an active effort to involve every member of the family in providing for the family's welfare.
Whether this means everybody agrees to take shorter showers, collect aluminum cans, or simply not ask for a special treat for a period of time, doesn't matter. What does matter is that the family members all understand that they are in it together and they each have an important role to play in the family's welfare.
Principle #8: Always Seek Education
Education can be formal, college courses or simply trade school training. Whatever the case may be, constantly seeking improvement in one's career, as well as making the effort to gain other skills, makes a person more valuable and employable. The goal is to become indispensable at your workplace, or to have other options to fall back on if you unexpectedly lose your job.
This prioritizing of education can have a great effect on the children in a family as well. As children see parents constantly seeking improvement, they will catch the vision and try to emulate their parents' example.
Principle #9: Pay Off Your Mortgage
Most homeowners understand that their home mortgage is a useful tax benefit. However, this tax benefit is greatly outweighed by the immense amount of interest you will pay throughout the lifetime of the loan. This being said, you want to do your very best to accelerate the pay-off of your home mortgage.
The truth is that your home is not an asset until you truly own it. An asset makes you money, but your home doesn't do this until you have eliminated your interest payments. So make it an asset as quickly as possible.
Principle #10: Use Insurance Appropriately
Life insurance is an important part of any family's financial plan. However, it is easy to be deceived by the many slick salespeople and deals' out there. You want to take the time to educate yourself adequately before you choose an insurance plan.
Term life, whole life, universal lifethese can each be useful at different times in your life. It is vital that you understand which one will work best for you at your current stage in life. However, it is also vital that you have something in place soon if you do not already. It is simply irresponsible to not have an insurance plan in place.
Principle #11: Understand the Impact of the Economy on Your Plan
Today, many people are seeing just how profoundly the economy can affect their current financial state, as well as their prospects for retirement. Important areas that you need to study include: inflation, the stock market and its trends, different approaches to investing in the stock market, tax-protected investment tools, the value of the dollar, bonds, company retirement plans and Social Security.
This is a long list, but isn't your financial health worth the effort?
Principle 12: Plan for the Unexpected
How do you plan for the unexpected? With foresight and discipline, you can have enough resources stored away against emergencies so that, come what may, you and your family are well-taken-care-of. Things to keep in mind:
* Have a liquid savings that is equal to your needs for three months.
* Store enough food for at least three months. You need proteins, grains and water at the very least.
* Learn to garden for vegetables and fruit, and learn to safely process and store this produce.
* Have a three day emergency kit handy at all times, in the house and in the car.
Having these things in place will help you avoid dangerous situations that could result from the sudden loss of a job, electricity or fuel. We are not predicting some kind of cataclysm, but as the old adage says: Better safe than sorry.
Conclusion
These important money principles, if followed, can keep you and your family on an even keel, heading safely toward financial success and health. Obviously they are not get-rich-quick strategies. Rather, they are foundational principles that should inform the way you treat money and educate yourself and your family.
These principles are adapted from One for the Money, a publication of the LDS Church. http://www.providentliving.org/pfw/multimedia/files/ pfw/pdf/88720_33293_OneForTheMoney_pdf.pdf