The Core Principals to Money Management - Learn How to Manage Your Finances
Famed football coach Vince Lombardi always used to take his fabled Green Bay Packer teams back to the basics of football when they struggled. He would have them perform blocking and tackling, believing they needed to reestablish a good foundation for other football activities. This is a good principle to follow in one's financial life as well -- go back to the basics when things go awry. Let's talk about those principles of credit repair, money management, and financial prosperity now. With the glut of foreclosures hitting America in the past year, it is clear many are living beyond their means, violating one of the core financial principles: live within your means. It's understandable why many don't do that, however. Everyone wants the American dream of home ownership, financial prosperity, and the overall good life. Seeing others have the things you want is difficult and in a land of wealth like America, you see it all around you. Conspicuous consumption is all around you and many fall prey to taking the pathway of least resistance and use credit to finance their desired lifestyle. Wealth is not inherently evil for money does many good things like provide medical care to the sick, create farms, build bridges, provide for the nation's defense, and allow us to meet the necessities of life. As human beings, we all have an innate desire for something better and of course for more of everything. It's when this desire crosses the line to covetousness when things go awry. So, what are the core foundational principles of which I speak? They are: *Spend less than you have coming in and save for a rainy day *Learn to distinguish between needs and wants *Use debt as a financial instrument of necessity, not as a prime financial tool -- Use credit cards in place of cash for safety reasons *Pay all bills on time Let's briefly discuss them now. Spend Less Than You Have Coming In By learning how to save, you naturally discipline your financial impulses. By unrestrained spending, people run up credit card debt, which can be extremely difficult to manage. By learning how to spend less than you have coming in allows you to save money for that rainy day that inevitably comes. When our financial sun is shining we tend to think it will be that way forever, don't we? But unforeseen events often can unexpectedly knock us off of our reverie. Losing one's job, an unplanned for baby, an accident, a health challenge, or a natural disaster can very quickly drain what little savings we have if any. By learning how to spend less than we have coming in and then carefully safeguarding that income can allow us to plan for a comfortable retirement or to use those funds when that rainy day comes. One of the unexpected byproducts of this principle is that you have money to buy the nicer things in life. By following this strategy has allowed me to afford some of the things I want in life. It can for you too. Learn To Distinguish Between Needs and Wants Many Westerners who have lived in abundance all of their lives grow accustomed to modern-day living. Modern-day transportation, plentiful food, good housing, sanitation, clean water and modern-day technical conveniences, opportunities for good education -- all are taken for granted. And consequently, the line between needs and wants gets conveniently blurred. We began to think we need that new car, that new washing machine, that new TV, but do we? Actually no. That's not to say modern-day conveniences are bad, they're clearly not. It is our attitude toward them that is at issue here, not the conveniences we enjoy. Here's the point: When one lives beyond their means, a host of problems inevitably ensue. The use of debt in living beyond our means allows us to prolong the day of reckoning but debt is a keen observer of dates and times and that day of reckoning will come. It is an interesting financial phenomenon that one's needs expand when financial prosperity has already been attained. Such an attitude is due to pride, the inevitable byproduct of wealth or prosperity and that attitude is usually at the use of consumer debt itself in our society, and that leads to the next point... Use Debt As a Financial Instrument of Necessity, Not As a Prime Financial Tool -- Use Credit Cards in Place of Cash for Safety Reasons Famed Founding Father Benjamin Franklin said, "Debt is a tanglesome net." In a literal way, debt is bondage with your creditor having authority or command of you. A friend of mine says that "debt is a four-letter word." While his point was made in humor, it has some common-sense applicability. Buying a home and paying for an education are the two main reasons to use debt. To use it for consumer purchases however, that is when one gets into dangerous territory. The instant gratification nature of consumer credit is a narcotic to many almost akin to the high the gambler addict feels and if not controlled could lead to financial ruin. A good rule of thumb to use when considering going into debt for a consumer item is to ask yourself the question, "Do I really need this?" Needs involve the bare necessities like food, water, housing, and health. If it doesn't meet that criteria, then it is not a need. Replacing an old washing machine with a new one is an example of that. Can you perhaps have the old washing machine repaired instead of buying a new one? Can you make that old suit last a little longer instead of buying a new one? In most instances, the answer is almost always yes. Last point for this subtopic -- use credit cards as cash either to avoid carrying a lot of cash around, which could endanger your personal safety, or just as a convenience. I use my credit card all the time. For every purchase I can actually. But I only have one credit card -- one. I don't need another. I use it to avoid carrying cash around yes, and I admit I use it to accumulate cash reward points, but I mainly use it for convenience. And, here's the kicker: I always pay its balance in full when the bill comes due. I've only once in my life ever carried a credit card balance and that was only for one month as I inadvertently read the statement and paid only the minimum amount. I use the card the same as cash and always pay it off at statement time. The result? The credit agencies love me and I have a sterling credit score. Pay Bills on Time The belief that one will be able to pay all bills on time without any issue is a common belief to those who acquire wealth. Not so. Let me tell an anecdote from my personal experience. While living in New Jersey in 1991, I was shopping for a new CD stereo system in Bernardsville, New Jersey, a very wealthy enclave for many celebrities. When I had decided upon a particular system, I asked the proprietor if he would take a check to which he readily agreed was no problem. He then made a very interesting comment. "In my years of business, I've only had one person ever bounce a check." I was intrigued. "Who?" I asked. "You won't believe me." He responded. "Seriously, who?" I cajoled. "Mike Tyson." He chuckled. "The boxing champion?" I asked in shock. "Seriously, yes." At that time, Mike Tyson's wealth was estimated in the $80 to $100 million range -- and he bounced a check for maybe three or four thousand dollars?! You can see that wealth doesn't automatically allow you to be financially upright or to pay your bills on time. If you allow you money to control you, or perhaps I should say, if you allow your attitude on money to control you, then you will fall into unwanted circumstances. So, pay your bills on time. This ensures financial honesty, which is at the heart of our current system of usury. Your creditors will respect you, the credit agencies will give you a sound credit score rating, and you will escape the financial ills that befall those who don't know how to manage their money appropriately. Closing In closing, while this article hasn't given you specific strategies on improving your credit or financial life, these principles can and should be the foundation of all you do financially. If you do, you will have significantly less stress, greater credit capacity, and a sure foundation for financial prosperity.
