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Pay yourself first, live below your means, educate yourself about all things finance.
Live within your means. Regardless of your income this is most important and is essential to apply other financial concepts as well.
Give away at least 10%, save at least 10% and live on what’s left.
I’m a big believer in the F.I.R.E. concept other than the R.E. part.
If we confine our discussion to personal finance, I would claim saving is the most important concept.
If we’re unable to live below our means and save money, we will have no money to invest and a bleak financial future. From my perspective, everything else pales in comparison.
Curiously, the inability to save isn’t restricted to people with low incomes. The book “The Millionaire Next Door” provides examples of people with high incomes who, due to lavish living, have little net worth. You don’t have to be a humble wage earner to fall into this trap.
+1. In my experience, the propensity to save has little to do with your salary in the sense that a lot of wealthier people have no money sense, they simply make enough that their mistakes have fewer consequences… and the only thing that stops a lot of poor people from saving is the need to spend the income they do have on necessities. Money is an artificial concept, and because of that I believe the truth is that a large number of people of all incomes and ages and backgrounds make very poor money choices.
I’m inclined to agree. It all starts with good savings habits — and, without them, all is lost (at least from a personal finance perspective).
Luca Pacioli was the Venetian monk who invented double entry accounting (and also taught math to Leonardo de Vinci). This is the most critical financial concept to understand.
Until you understand simple accounting you will never understand how assets equal liabilities plus equity, that is needed to understand what is the value of an investment is.
What you don’t measure, you don’t control.
What successful business operates without a budget… and absolute confidence that they’ll never run out of money?
Bonfante Gardens in Gilroy California is a good example that. The guy who founded it was visionary who had made a lot of money in the grocery business… but he tried to run it without standard financial controls and ended up having to sell it. It’s now called Gilroy Gardens and it’s owned by the city. It’s a wonderful place to bring young children, and i think it’s the only amusement park I routinely left more relaxed than when I entered.
The most important concept imho is automation.
Automation allows everything to happen without you having to manage it, which means you are free to do more valuable things with your time. Retirement savings, insurance, debt reduction (or avoidance) can all be put on autopilot, making you free to chase your interests and/or earning power. Automation also allows you to decide which goals are important to you and to prioritize those goals. This means that you are making progress towards your goals while you simply focus on the details of life.
I’m going to agree with Albert Einstein and say ‘Compound interest.’
This is one reason why the legacy of slavery, followed by Jim Crow, and the theft of Native Americans’ land should be addressed.
As Carl Richards says, “The entire purpose of financial planning is to align your use of capital with what‘s important to you.”
Of course, compounding interest and returns is important – being on the right side of it makes the world of difference.
Not being afraid to upgrade your life a little bit when your financial situation improves is OK! Lifestyle creep gets a bad rap, but isn’t that the point? You want to better your life and have more fun when you can. You just have to be sure to keep up your saving at all times.
Yes, lifestyle creep can boost happiness and, indeed, we should aim for a gradually rising standard of living. If we stayed at Motel 6 in our 20s and 30s, Hyatts in our 40s and 50s can seem like a great luxury. By contrast, if it was the Ritz Carlton in our 20s but bad money management compel us to stay at Motel 6 in our 50s, we should brace ourselves for unhappiness.
Know what you care about, and save for the inevitable rainy day, so that unexpected circumstances will interfere less with living according to your values.
Save as much as you can as early as possible and save regularly no matter what.
Spend less than you earn, invest the rest, and start early in life!