Personal Finance

How to Be Financially Smarter by Following These 6 Basic Principles

Be in control of your finance

Being financially smart means being in control of all matters related to your money. It’s not always correlated with wealth. There are rich people who are bad with money, while there are people with average income but wise with their money.

Financially smart is a trait we all should aspire to have. Sadly, many don’t know how to be one nor teachers taught us while in school. Most of us live a life with a lack of consciousness in this area. We earn, we spend and save what’s left (if any).

It’s never too late to get smarter with money. Below are listed 6 principles to live by to be financially savvy. These principles cover the basic idea, with how to apply it in detail is completely up to you.

1. Pay yourself first

The first rule we all must follow to be financially savvy is to pay yourself first. It means setting aside a percentage of our income for savings and investment, basically, for our future. It’s how you truly appreciate your hard work after earning the money.

Do this before spending the income on anything else, like paying bills and shopping. The common recommendation is 10% of income. Of course, the greater the number the better it is. You can also automate the process by making your checking account to automatically transfer a certain amount to the saving/investment account(s).

2. Track every income and expenses

This principle serves several purposes at once. First, it always puts you in the know about your current financial situation. You know how much you earn and how much you spend on a certain period of time. You’ll aware of your savings or debts. Having awareness of your financial situation helps when making further decisions and making improvements in various areas of your life, financially related or not.

The second purpose is to understand your habits about spending money. We all have our personal tendencies and priorities. I would advise for those of you that just started with personal finance to track your spending first and foremost before setting a budget.

Most of the time, budgeting fails to work for the same reason dieting does. It puts a sudden, random limitation which only encourages you to splurge afterward. By tracking your expenses first, you know how much you should allocate on every category of your spending.

There are many tools out there to help to track your finance. One of the most popular ones is Mint. I personally love and use Monefy for its simplicity.

3. Be wary about debt

It doesn’t mean we have to avoid debt at all costs. Sometimes debt can be convenient, such as credit cards with their perks. Debt can even be profitable in many cases.

This principle emphasizes more to our self-control toward debts. Especially when getting loans are easy and even encouraged these days. It’s easy to get ourselves into bad situations without realizing it.

4. Live below your means

This is the number one reason why many people are in a financial mess, from not having the money at the end of the month despite earning more than enough income to being trapped in a mountain of debts which seemingly takes forever to pay.

Being wise about money involves realizing that spending more than we can afford can be damaging in the long term. Not just to our financial situation but our wellbeing in general. The phrase “Buying things with the money we don’t have to impress people we don’t like” has its own truth. At the end of the day, it won’t make you happy.

Overspending also relates to our tendency to choose instant gratification over a long-term one. Why save if going shopping makes me feel good at the moment? Sadly we still have this way of thinking more often than we’d like to admit.

Another way to keep living below our means is by following this rule: Despite earning more, keep your lifestyle relatively unchanged. This is one of the financial advice I really live by. Upgrading your life is important, but not at the point that it's excessive.

5. Negotiate whenever you can

Financially smart people know how to get the best deal possible. Always negotiate whenever you can. Perhaps it’s time to ask for a raise at your job. Or maybe you can get a cheaper rent by negotiating with your landlord. There are a lot of opportunities to get the best bang of your buck.

Negotiating may seem scary. But like everything, you get better with experience. Sometimes you would feel you don’t need a discount since you can afford it anyway. But hey! It’s a discount!

6. Not afraid with the finance world and its intricacies

The last principle to abide so you can get financially savvier is by not being afraid to get down and dirty with the world of finance. Take some time to research the best savings account instead of just go what the bank recommends, learn about the stock market, and know what an index fund is, among many other things.

The finance world can look like uncharted territory for many of us. There are graphs and stats, countless financial terms to understand. It can be confusing at first and discouraging, even. But knowledge is indeed power. And those who have the power reap more benefits.

By learning, we’re opening ourselves to a myriad of opportunities. We will understand how money works and how can we make money works for us, instead of us working for money. We will know how to invest and what are the choices available out there for investment. The ultimate goal is to help us reach financial freedom.

To summarize, here are 6 principles to be money smart:

1. Pay yourself first 2. Track every income and expenses 3. Be wary about debt 4. Live below your means 5. Negotiate whenever you can 6. Not afraid of the finance world and its intricacies.

Let me know what you think by giving a response below. Thanks for reading!

Subscribe to my newsletter here or you can reach me on Twitter.