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3 Keys to Personal Finance

A concept I have been obsessed with recently and ultimately is an underlying reason why I began this forum is the idea of financial freedom. Being financially secure to the point where you are financially secure and do not have to worry about being able to maintain your current lifestyle due to your investments returning more money than the cost of your lifestyle. That is absolutely something that is ideal and the first thought often goes to relaxing on a beach or being able to spend lots of money. The key is actually just being able to live a comfortable lifestyle without having to be concerned about losing your job or an unexpected expense. Being able to achieve that level of financial security is a goal that every person should have.

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Once you achieve that level of financial security you are able to then go earn more and ultimately expand your lifestyle. In order for either of those to come true, you must understand the basics of finance. There is a statistic about how lottery winners tend to be more unhappy and in a worse financial position within a couple of years of winning the lottery. The reason is that these folks often never learned the basic concepts of personal finance and thus gave away, wasted, spent, or misjudged their winnings. There is a story in The Richest Man in Babylon that tells the story of a wealthy boy who was given a sack of gold to go make his own way from his wealthy father. Sure enough, the boy lost that gold almost immediately and learned a number of trying lessons before being able to master the basics of finance.

Those basics are first and foremost earning some sort of income. It does not matter if it is small, medium, or a large sum of money, but being able to earn money is the first step. Without earnings or having money come in then there is no way to ultimately become financially secure. The second step is to then save or pay yourself first. The guidelines used in The Richest Man in Babylon are to save at least 10% of your total earnings. Before paying bills or purchasing food – put your 10% away somewhere were you cannot see it or touch it. Many employers allow direct deposits into multiple accounts or even multiple checks. If you can automate it then do it. You will be amazed at how that one simple tweak will have such a dramatic impact.

Once you’ve mastered the art of saving 10% of your earnings no matter how hard it is, then it is time for the third step which is to invest your money. Allow your money to go out and earn more money for you. There are a lot of places to invest your money and even more folks trying to tell you where to put it. The best investment is in yourself and the second factor is to invest in those with a successful track record (hence why credit and grades are used to tell if someone is experienced or not). Do not trust just anyone with your money and do not invest in areas you do not feel comfortable. You wouldn’t trust your dentist to do your taxes and you shouldn’t let anyone with a good idea and no experience influence you to give them your money. You must spend the time researching and understanding before you make an investment decision with someone who is inexperienced and lack knowledge in that investing area.

Some of this sounds simple because it truly is. Earn money! Save money! And invest for more!

More posts…

Lessons of History

Think and Grow Rich – Book Review

Invest in Yourself

The Role of the Individual in History

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15 thoughts on “3 Keys to Personal Finance

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    1. I’m glad to hear you are getting better at saving. It is important to pay yourself everytime you create income. Have you been able to pick up The Richest Man in Babylon yet?

    1. I appreciate your feedback and glad you found it insightful. What is your approach to your personal finances?

  1. Well written and true for all times. I have never read “The Richest Man in Babylon,” but it just made it on to my reading list thanks to you. Really like the topics you posted here and look forward to your input on personal finance and investing in the future!

    1. I appreciate your feedback and am glad you enjoyed the post. Definitely pick up a copy of the Richest Man in Babylon. It is a quick read yet very impactful. If you have any suggestions for specific topics you’d like covered I’d be happy to research or write towards those areas. Thank you for your thoughtful comment!

  2. Simple lessons, but in a nut shell, personal finance is simple. To your point, there are people who make a lot of money trying to make investing complicated, so we’re forced to run to them for help.
    I love your point of automatically sending money from your paycheck into either an investment of savings account. People are really bad at making the right decisions all the time, so setup an automatic deposit ONCE and then you never have to make the “right” decision again. Chances are, if you set it up, you’re not going to go in and change it.

    1. Hi Taylor, I’m glad the post had a few points that resonated with you. Automating savings and investing has been very helpful for me. What are you focusing on to help you achieve your personal financial goals?

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