Financial Principles that Everyone Should Know and Follow

by Josue Tavorn

Related image

Of everything that’s learned by students in K-12 education, anything concerning the management of money seems to be less of a priority than other subjects. This is an unfortunate reality since money management is a critical life skill to have. An inability to effectively manage money can have a devastating impact because it can cause instability in life that’s hard to overcome. In fact, financial issues is one of the top reasons why couples get divorced. Fortunately, there is a lot more information available now than ever before as a result of technology and online resources.

Some people choose to read books, while others choose to listen to podcasts or take classes in their spare time to learn about financial principles. Whatever method works best for you is fine as long as you make a commitment to learn. There are many financial literacy lesson plans that can change your life if you follow the principles covered. For instance, the idea of spending less than you earn is something that’s basic, yet it doesn’t always happen. We live in a world where it’s easy to obtain financing either through loans or credit cards. Credit card debt is something that has destroyed lives because it quickly snowballs and gets out of control. Spending less than you earn simply requires having a budget and knowing your limit. It requires a commitment to never go over that limit.

One of the most important financial principles is making your money work for you. This means making investments whenever you have a chance and it’s not as difficult as it might sound. The laws surrounding compounded interest makes it easy to build wealth over a period of ten, twenty or thirty years because the longer you invest the money, the more time it has to grow. A small investment starting in your twenties can create unimaginable wealth by the time you’re in your fifties. The earlier you start to invest and the better your investment choices, the more likely you are to become a millionaire. Even if you goal isn’t to make millions, a more modest investment can still result in financial security. 

If you make the decision to investment your money, it’s important to take calculated risks. Most people found this out during the financial crisis because a lot of investments were made by brokers on behalf of their clients that were risky. At the time, many people were not involved in the process of managing their investments because they assumed their broker would manage the risks involved. While it is definitely the job of a financial advisor or broker to assess risk, it’s ultimately your responsibility to know where your money is going. 

The best way to manage your investment is to ensure it’s diversified. In other words, make sure you don’t put all of your eggs in one basket. There are some investments that are more aggressive than others, which is fine, as long as you also have safer investments too. This is the type of information that you can find through online research or by taking a course on financial literacy.