Four Principles of Financial Planning Success
Made famous and noteworthy of late by a delivery to Congress from ‘financial expert’ Ron Blue, these four principles have stood, and will continue to stand, the test of time. They didn’t need to be developed by Harvard MBA’s or Wharton School honor students. They are simple, common sense ideals, sometimes forgotten or abandoned, concepts that are simple to understand, but not always easy to carry out.
- Think long-term with goals and investing.
- Spend less than you earn.
- Maintain liquidity (an emergency savings).
- Minimize the use of debt.
Simple but not easy. Commonsense and not complex. Yes of course specific financial plans take much more in depth insight to plan for specific objectives and goals and need to take into account regulations, laws, taxes, etc. based on specific circumstances. But these are core principles to build your financial lives and plans on. If your base, your foundation is built on these core ideals, you will be much more able to plan and make it work, in good and bad times.
Let’s expand and explain.
Think long term.The longer-term your perspective, the better financial decisions you’ll make. Set goals for the future. Invest for the long term and worry less about the short term ups and downs of your 401(k) account.
Spend less than you earn.First you need to know what you earn and what you’re spending. Write it out. Call it a ‘budget’ or not but get as close or high level as practical and know it, monitor it. Develop self-control on spending. If you spend less than you earn over a long period, you’ll more likely do well.
Maintain emergency savings. This reserve set aside will help you ride out life’s surprises. You will need to be spending less than you earn in order to build savings. And this savings will help you avoid debt.
Minimize the use of debt.If you increase debt, you increase your risk. It may allow you to do more now, but it will detract from your abilities to save and invest in the future. Financial problems are usually magnified with debt.
It is easy to overlook these simple financial principles. But in good times or bad, recession or boom, inflation or deflation, these principles have stood the test of time. The Four Principles of Financial Success should be the core, the base, the beginning of everyone’s planning.
This information is for educational purposes only and should not be considered specific investment advice. Different types of investments involve varying degrees of risk including market fluctuation and possible loss of principal value. There can be no assurance that any specific investment strategy will be profitable.