Building a better financial future is about making smart decisions about your money. This requires that one has an understanding of the basic money concepts that will drive financial success. Applying essential money habits with these concepts in mind make a powerful combination.
What are the most important money concepts that people need to understand?
There are four basic money concepts that drive everyone’s financial life no matter their age or situation. The four are: preparing for a rainy day, developing a smart budget, knowing how to handle debt and living within your means. Crush these four concepts and your financial future will look brighter.
What should you understand about preparing for a rainy day?
This is building an emergency fund and more. We all need to be prepared for a full range of emergency which is why besides savings everyone needs to have appropriate insurance that includes health, life, disability, auto and dwelling insurance. Without all of these tools a person is really living on a financial cliff.
Are there any tricks to developing a smart budget?
Some people view a budget as a tool to track their expenses but a next level budget or smart budget includes components that can help accomplish long term goals. To build a smart budget, include your savings priorities such as retirement plus debt reduction strategies in the budget. This then becomes a tool to make important life decisions.
What do you need to understand about how to handle debt?
Most people will need to use debt from paying for college to perhaps one day as part of owning a business. The key is understanding how to handle debt properly and making sure to focus the majority of your debt on appreciating assets instead of debt that is used for lifestyle purchases. It is important use your income as a guide to the amount of debt that you accumulate.
How can you make sure you are living within your means?
This is different than not spending more than you earn. People have the means to live a lifestyle beyond their income and if they are not careful, this lifestyle can lead to a financial reckoning. Living within your means requires prudent borrowing, purchasing homes and cars less than you can afford and generally keeping lifestyle inflation in check. Follow these guidelines and your will be living within your means.