Principles of Personal Finance

Basic principles of personal finance include organizing finances, spending less than we earn, putting money to work, limiting debt to income producing assets, continuously educating ourselves, understanding risk, maximizing employment benefits, paying attention to taxes and planning for the unexpected.

Organizing Finances

Organizing finances is the first step of creating wealth and it is important to track credit cards, bank accounts, personal loans, mortgages, brokerage accounts, car loans and retirement accounts. Budgeting software is helpful in tracking all such accounts, making on time payments and more.

Spending Less than We Earn

Powerful tools associated with personal finance software helps individuals to track and budget their spending.

Putting Money to Work

Investors should necessarily take advantage of the time value of money in the contemporary post Covid world.

Limiting Debt to Income Producing Assets

According to personal finance experts, credit cards used to buy household goods and clothes are bad bargains. Individuals in debt can opt for financing items that retain their value over time just like real estate and education.

Continuously Educating Ourselves

Comprehensive knowledge of basic personal finance principles is on our fingertips thanks to the advent of internet. It is a great idea to read periodicals, books and blogs associated with personal finance.

Understanding Risk

Investments like stocks and bonds that offer higher returns have risk. Certificate of deposit and money market accounts with a lower rate of return have a lower risk of losing principal. Diversifying investment is absolutely important in the current internet age.

Diversification is not Just for Investments

Investors should find creative ways to diversify their income and it is an innovative idea to convert our talents into a money making opportunity. Making money from home is a great idea. Why can’t we start a home based online business and reap rich dividends? The extra income from home based online business can supplement full time income or result in an exciting job switch.

Maximizing Employment Benefits

401K plan, flexible spending account, medical insurance and dental insurance yield some of the highest rates of return. Investors should try their best to save money by reducing taxes and out of pocket expenses.

Paying Attention to Taxes

Individuals can manage their tax information with financial planning software and popular financial planning software analyses taxable investments and provides feature rich organizing tools.

Planning for the Unexpected

We should save money for unexpected events like unemployment, accidents, medical care, car repair, house repair and natural disasters.

Books on personal finance provide wealth of information on basic principles of personal finance. The real trick is understanding personal finance basic principles and applying them. Basic principle of personal finance is not just about increasing net worth or saving for retirement. It is to be kept in mind that money is for living.

Spending less than we earn means living within our means, not overspending, not getting ourselves into debt, and start saving. Creating a budget and sticking to it is the first step of basic personal finance management. Lots of people believe that buying a home is a very good investment and owning a home on our own may be a distant dream all over the world especially in the United States of America.