General objectives that guide the activities and relationships of one state in its interactions with other states.

Source:moneystrands.com

5 Personal Finance Truths to Live By

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The pursuit of money is universal, yet only a small percentage of people ever acquire and grow true wealth. Ultimately, it comes down to smart, informed decision-making, patience, and discipline. And if you study human behavior, you’ll discover that these aren’t innate traits. But in spite of this, there is optimism. Though they may not be inherent, the good news is that these traits can be learned. Are you willing to try?

Source:campuspress.yale.edu

5 Smart Money Truths

It’s hard to pin down a financial belief and call it a universal truth. Every situation is different and people have a wide range of theories and beliefs. But the following five principles are as close to objective truth as you’ll find. Follow them and you’ll almost certainly move closer to wealth:

  1.     Spend Less Than You Make

This seems like a pretty simple and obvious principle, but it’s one that most people don’t follow. In fact, a Pew Research study suggests that 54 percent of households spend more money than they make each month. In other words, the average household is watching its net worth decline each month – a truly scary thought!

The first step to building wealth is to spend less than you make. If your net monthly income is $5,000, this means you should be spending a maximum of $4,999 (though preferably much less). This will likely require you to keep a budget, track expenses, and practice disciplined spending in areas that eat up your money (like eating out or online shopping).

Source:money.usnews.com
  1.     Don’t Be House Poor

The second universal money truth is to avoid being house poor. Only purchase what you can reasonably afford – which probably won’t be the same as what the bank tells you that you can afford.

According to Green Residential, “Your goal is to buy a house that leaves enough room in your monthly budget for you to live a comfortable lifestyle. If the monthly payment is high enough that it strains your resources to make ends meet, you have too much house for your lifestyle.”

In addition to straining your budget, buying too much house comes back to bite you by forcing you to keep up with the Joneses. Research shows that living in an affluent neighborhood makes you more likely to mirror the consumption habits of your neighbors. If you’re living in a million-dollar neighborhood when you should be in an upper middle class neighborhood, you’re going to feel the pressure to buy nicer cars, clothes, and jewelry than you can reasonably afford. You’ll want to send your children to nicer schools, pay more for lawn care, host nicer parties, etc. You can avoid all of these pressures by purchasing a house at the correct price point. 

  1.     Diversify Your Investments
Source:uniquewebdir.com

There are hundreds of unique investment strategies. To say that one strategy is best for all would be foolish. However, the concept of diversification rings true across the board.

As you invest, be sure to stay diversified. From a macro perspective, this means investing in different investment classes – like stocks, bonds, real estate, etc. From a micro perspective, it means diversifying how you invest in each class. (For example, a good retirement portfolio doesn’t consist of one or two stocks. Instead, it contains a variety of mutual funds with varying levels of risk.)

  1.     Avoid Bad Debt

Anyone who tells you that all debt is bad doesn’t fully understand the utility of debt as a vehicle for generating leverage and acquiring wealth. There is, however, a huge difference between good debt and bad debt.

Good debt includes real estate, small business ownership, and loans for education (within reason). Bad debt looks like credit cards, vehicles, and consumable goods (such as jewelry, clothing, boats, and other products that lose value over time).

The goal is to avoid bad debt, while strategically using good debt to opportunistically build wealth. The better you become at differentiating between the two, the more success you’ll have.

  1.     Know the Difference Between a Want and Need

If you’re having trouble practicing smart financial behaviors, it’s probably because you have a skewed understanding of what constitutes a want and a need. Clarifying your position will help you get a hold of your finances.

The truth is that you have very few true needs. You need a roof over your head, food to eat, clothes to keep you warm, healthcare to keep you well, and perhaps a reliable vehicle to help you get around. Outside of this, almost everything is a want – including eating dinner out, shopping on Amazon, and buying a nicer car.

Source:clark.com

If you focus on buying what you need and only occasionally delving into wants (as they fit into your budget), you’ll find that wealth suddenly becomes much more attainable.

Practice Patience and Discipline

It’s a common misconception that in order to be financially successful, you have to run around like a crazy man and take significant risks. The reality is that risk will eventually bite you in the rear. The better strategy is to practice patience and discipline – occasionally interspersing calculated risk to amplify your returns. 

 



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