Follow These 4 Financial Principles and Never Worry About Money Again

There are a lot of things in life that are uncertain. Relationships, health, jobs, the future. The list could go on and on. Honestly, other than death and paying taxes most things in life can change in the blink of an eye. One of the big uncertainties of life can be finances. One month you may be super excited to see that you were able to save some extra money by cutting your grocery bill or seeing that you didn’t spend as much on gas. But as soon as your excitement has peaked, karma has a way of bringing you back down to Earth through your car battery dying, your kids needing braces or one of your cats scratching the mess out of another one of your cats leading to an emergency vet visit consisting of stitches, prescription pain medicine and an $800 vet bill. But, these are just random examples and have nothing to do with our own personal experiences… gosh, that was a hard vet bill to swallow.

The point is that life has no problem throwing you curveballs and while you can’t always dodge them all, a little planning and strategy can help you lessen the welts those dodgeballs sometimes leave (remember back in the day, leaving PE covered in welts from getting nailed with rubber dodgeballs? Man, kids these days will never know!)

Let’s talk about 4 financial principles that we live by and if you choose to adopt these principles as well, you will never have to worry about not having enough money when things around you start to crumble.

Principle # 1

LIVE ON LESS THAN YOU MAKE

We live in a technology oriented world where not having the latest and greatest gadgets means you're not keeping up with the Joneses. Well, I’m here to tell you I have met the Joneses, and they are stuck-up dirtbags. Feeling the need to obtain as many material things as you can is a deep rooted cognitive issue. Adopting a minimalist mindset is not something that comes easily to most, and the fact is that a lot of times it’s not your fault.

Studies have shown that spending money releases a hormone called dopamine, also known as the “feel good” hormone. This instant rush of pleasure can cause you to throw all caution to the wind and not come down from the dopamine high until you come home and realize you spent a ton of money on an inflatable couch and a kayak.

So, here’s the basic gist. If you make $2,000 a month and your expenses (and this is mandatory expenses like your mortgage, electricity, groceries etc.) cost $2,500, this is going to make it very difficult for you to prepare for those above-mentioned curveballs. This is where many people start accumulating credit card debt in order to cover expenses that they do not have the funds for. Which explains why Americans have a total combined credit card debt approaching $1 trillion! If this situation is hitting close to home, you need to set your focus on creating more income through side hustles or finding a more competitive job. Now before you start yelling at us through your screen “But, I don’t have time” or “There’s not enough money in the world for me to make more!” Know this, money is infinite as well as your ability to earn more of it. Don’t believe me? Read Jen Sincero’s You Are A Badass At Making Money to help you discover the things that are holding you back from making more money.

Now on the other hand, if you bring home the same $2,000 paycheck every month but your bills only total $1,500 a month, that extra $500 needs to be put toward your emergency fund. Read our post on 12 Reasons You NEED an Emergency Fund. Your emergency fund should consist of at least 3-6 months worth of living expenses for when those emergencies arise. Like the saying goes, it’s not a matter of IF it happens but WHEN it happens.

If you already have a fully funded emergency fund, then that extra money each month should be invested. Whether it’s an IRA, a 401(k) or a low cost index fund or bond, in order to create wealth, living below your means and investing the extra is one of the most powerful tools you can use to grow your money.

Principle # 2

CREATE A PLAN

This is where your personal budget is going to come into play. You need to know how much money you have coming in as well as how much you have going out each month. Without a working knowledge of your spending habits, gaining control of your money will be impossible. This principle starts with you sitting down and meticulously tracking your income and expenses. Creating a plan is what is going to help you stay focused and reach your financial goals. Analyze where your money goes and identify areas where you can make adjustments. Set realistic spending limits for each category and challenge yourself to stick to them. For example, if you know that you spend $700 a month on groceries to feed your family of four, don’t go into your budget determined to get that grocery bill down to $200 a month by feeding your family beans and ramen for every meal. Start small by thinking, "Okay, if I usually spend $700 a month on groceries, this month I am going to see where I can cut to get that bill down to $650.”

Remember, a budget is not about deprivation; it's meant to give you a clear picture of your finances and how to reduce spending and keep your plan running smoothly.

Principle # 3

AVOID CONSUMER DEBT

Let’s start off with a few not so fun facts. The current amount of American credit card debt hit $986 billion in the first quarter of 2023. Americans currently have a combined total of $1.78 trillion in student loan debt and to top it all off, American mortgage debt is a whopping $17.05 trillion according to CNBC. It’s no wonder that with rising interest rates, lending companies are rolling in cash.

To say that Americans like to spend money is an understatement. If we’re being honest with ourselves, debt weighs us down. It creates a perpetual cycle of overspending to satisfy our wants, while very little of it actually goes to our needs. If you want to get out of debt and grow your wealth, you have got to get off the rollercoaster and get your mind right. Getting out of and staying out of debt is a crucial step toward financial independence.

Loan companies WANT you to spend because the more you spend, the more they make. Look at it this way, if you are one of the few people who are good at paying their credit card off each month and the only reason you charge anything to the card is to earn points or rewards, then rock on! Keep racking up those points! However, if you find your credit card bill getting bigger each month because you are only making the minimum payment, this is how the cycle starts and will only snowball from there.

Many credit card companies will calculate your minimum payment as a percentage of your balance, usually around 2%. So let’s say you have a credit card with a balance of $1000 at an 18% interest rate. If you only make the minimum payment (which will be around $20 a month), it will take you over 12 years to pay off that credit card! And that’s assuming you never add more to the balance you owe. Y’all, by the time you pay off that card, you will have paid more in interest than the initial balance. Now do you see why credit card companies are so ready and willing to approve anybody and everybody?

Principle # 4

SAVE AND INVEST AS MUCH AS YOU CAN

Now this is when the real fun begins! Saving and investing is where you are going to finally see your wealth grow through the magical power of compound interest! Your very first step is going to be to build that emergency fund that we talked about earlier. 3-6 months of living expenses is the minimum you should have in this account. Because, like we said before, it’s not a matter of if the emergency happens but when the emergency happens.

We get asked a lot about the order of investments people should be putting their money into. Here is our suggestion and how we personally invest our money in order of importance.

Fully Funded Emergency Fund: 3-6 months worth of expenses kept in a high interest savings account that is not touched unless it is an actual emergency (and no, we do not classify our cruise addiction as an emergency.)

Employee Sponsored 401(k): If your employer offers a 401(k), 403(b), TSP or any type of employer sponsored retirement plan, this is the next place to start throwing money. ESPECIALLY if your company offers a contribution match! If your company offers a contribution match, they will match your contribution to the account up to a certain dollar amount or percentage. Put more simply, THIS IS FREE MONEY! If this is a benefit your company offers, PLEASE take advantage of it!

Even if your employer does not offer a match, maxing out these accounts provides a tax advantage by lowering your taxable income so you pay less in taxes now. The current maximum you can contribute to this type of account is $22,500 per year as of 2023.

Roth IRA: Once you have funded your emergency fund and contributed enough to your 401(k) to at least receive the company match, the next place you want to put money is in a Roth IRA. This account allows your money to grow tax free over the years and then allows tax free withdrawals in retirement. This is because you are funding the account with after tax dollars. The current limit for maxing out a Roth IRA is $6,500 per person or $7,500 if you are 50 or older.

We use a method called frontloading which is where we put the maximum amount into the account at the beginning of the year so the interest has more time to compound as the year progresses.

Low-Cost Index Funds and ETFs: Companies like Vanguard and Fidelity offer index funds and ETFs (Exchange-Traded Funds) with very low fees. After we have funded all of the above, this is the last place we will put our money, if we have any left. Index funds and ETFs are funds that track the stock market. We love both of these funds because they comprise a portfolio that contains hundreds or even thousands of companies all in one basket. It’s like having a bunch of mini baskets all packed into a huge basket. This means that if one or two of those stocks are performing poorly, it won’t tank our entire portfolio. This beats investing in individual stocks, which hold a higher risk with more volatility.

This is how we prioritize our investments, and it may not be the right way for everyone, but it is what we have found to work for us. Make sure to research an investment plan that fits your financial lifestyle before jumping in headfirst.

So that’s all folks, just that simple. If you follow these 4 simple principles you will have a significantly higher chance of growing your wealth and becoming financially free. Whether you are wanting to retire early, set yourself up for the future or just work hard now so one day you can sit back and enjoy life without worrying about money, these 4 easy to follow financial principles will guide you on your journey to financial freedom.