16 Fundamental Truths of Personal Finance

16 Fundamental Truths of Personal Finance August 8, 2014

1. Pay God First

Where your treasure is, there your heart will be also.  It’s important to understand that money shouldn’t’ be the sole reason behind why we work each day.  Our hope doesn’t lie in the dollar, euro, or gold; it’s founded on Christ.  Personal finance is no different.  When we acknowledge our dependence on Christ, we can start to see how faithful God really is.  This is why giving is so important.  We give so that others might hear the Gospel and find the same hope that we have

2. Pay Yourself Second

You may have heard of the 10-10-80 principle:  Pay God 10%, Pay Yourself 10%, Pay the bills with 80%.  For some, that may seem impossible in your current financial situation.  There’s no magic way to suddenly change your financial picture so that you can use 80% of your income to pay bills and give/save the other 20%.  The reality is that it’s easiest when you implement this practice early and make it a priority.

3. Roth IRAs are Awesome

Saving for your future doesn’t need to be complicated.  Putting money aside in a Roth IRA can mean huge tax savings for you in the future.  Remember, the contributions you make into a Roth IRA have already been taxed, so both the earnings and principal within the IRA will be distributed tax free.

4. Take the Match!

If you aren’t taking advantage of your employer’s 401(k) match, you’re leaving free money on the table.  You can’t afford not to take the match, so always be sure to contribute as much to a 401(k) or 403(b) that will qualify you for any company match.

5. Build an Emergency Fund

Having 3-6 months of expenses is an excellent goal for someone who has already created a baby emergency fund of $1,000.  If you have to tap into your emergency fund, make it a habit to refill the emergency fund as soon as possible!

6. Make a Budget That Works For You

It WILL take a little time to work and rework your budget.  Don’t let it frustrate you.  Instead, try to use Mint.com to help you track your money more effectively.

7. Spend Less Than You Make

Sounds too simple, but it’s true.  It goes hand in hand with creating a budget, and should be a no brainer.  Unfortunately, credit card debt is still a problem in America today, which tells me that we’re living on borrowed money.

8. Eliminate Debt with Fury

The borrower is slave to the lender.  Do all that you can to pay down debt as fast as you can.  Put every spare dollar towards debt and you’ll soon realize the freedom that comes with being debt free.

9. Invest Wisely

Don’t invest in something that you don’t understand. Look for a well-respected mutual fund company and select a fund that provides solid diversification.  Don’t chase returns and neglect diversification.

10. Use Insurance Properly

Whether you’re looking for car insurance or finding rates for term life insurance, be sure that you don’t compromise your coverage for the monthly premium.  Also, it’s always wise to do your research before signing the contract with an insurance company as there are often many caveats and fine print that can be overlooked if you aren’t carful.

11. An Investment Increases in Value

Unfortunately, I’ve heard the following items called ‘investments’: cars, clothes, and electronics.  Unless you’re buying a very rare car or a collectible, these items are simply expenses.  A real investment will increase in value and provide a return for your investment.

12. Invest for the Long Term

With the recent market crashes, the news has been highlighting the negative investor sentiment that seems to be dictating the markets.  Too many decisions are made emotionally and cause investors to lose out on future gains.  If you’re truly in it for the ‘long haul’ make sure you keep your emotions out of your investment decisions as much as possible.

13. Side Income is Achievable

You can make money with your passion.  With a little creativity and a lot of persistence, there’s no reason why you shouldn’t have opportunities to make as little as $50 each month to $500 or more by doing what you love on the side.

14. Keep Impulse Out of Your Purchases

This can be a challenge, especially with the holidays coming soon.  One of the best pieces of advice that I’ve ever heard regarding impulse spending was to create a 30 day rule.  Before you buy something on impulse, make it a point to wait 30 days before you buy.  If you’re still passionate about buying it, give it some serious thought.  If you’re over it, you’ve just successfully saved yourself some money!

15. Enjoy Your Money

There’s a careful balance that you need to keep as you become better at managing your personal finances.  If you don’t leave room for enjoyment, you’ll soon become a slave to your budget and feel overwhelmed and trapped by it.  Make it a point to have a little fun money each month and reward yourself (within reason) for a job well done.

16. Generosity is Contagious

We started by acknowledging that all our resources are from God and that we can use our finances to spread the Gospel.  Outside of giving to your church or to missions, you can practice generosity in the smallest of areas.  Sometimes the small things like paying for a friend’s coffee, buying lunch for someone, or buying some school supplies for a teacher in need can speak volumes!  What better way to share God’s provision in your own life than by providing for someone in need!

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