There are multiple ways to improve your financial position. One way is by using the four principles of finance. These are income, savings, spending and investment. If you follow these four principles, it can help you maintain your finances at a healthy level and sometimes will help build wealth over time. The four principles should be the core, base and beginning of everyone’s planning.
Income
Income is the starting base to gaining wealth. Having a secure job is key to fast building of income. A lot of people will work multiple jobs to afford to even start to live a comfortable life. Additionally, people will work side jobs on top of their main job such as uber driving. Uber driving is a good side job for as it is flexible and can be worked around a busy schedule. Furthermore, odd jobs can also help build financial stability. Without income the other three principles would cease to exist and it is the building blocks to the others. You can only start saving, spending, and investing money once you have earned money to do so.
Savings
This principle is key to making sure there is money to be used in the future. Savings can be put towards many projects such as buying a house, car or even going on holiday. In the long run, having savings set aside can help you escape financial emergencies, afford expensive purchases, and can help you work towards financial goals.
Spending
Spending is mainly seen as a reward for hard work at your job for example. There is strong motivation to do well in your job and make more money when spending comes into play. Many people decide to put their spending into different categories. For example, some people would rather spend their money on designer products, whilst other might chose to spend their money on holidays or to give themselves and their family a better quality of life. However, control of spending is vital for financial stability. One way of doing this is budgeting spending and by doing this it can help increase wealth in the long run.
Investing
This is a sustainable way of building one’s wealth. There are many ways to invest, with the most popular being investing in stocks and real estate. Investing is a way to help build sustainable funds in the future. However, like with everything, there are some consequences that come with investing such as risk versus return. To minimize the risk, it is good to learn what bonds are riskier and which ones are also worth this risk. Usually, government bonds are safer than stocks. Saving and investing sometimes contradict each other, although learning how to properly invest can help you save money in the long term.
Ways to sustain being financially stable would include planning your finances in the long term, spending less than you earn and minimizing the use of debt. Planning in the long-term can help you set goals for the future and invest in the long-term so you can worry less in the short-term. One way to help control spending less than you earn would be budgeting. Budgeting has many different techniques; however, the simplest way is traditional budgeting which helps you set goals of how much you want to spend in different categories such as shopping, bills, entertainment, and groceries. With the current cost of living crisis happening in the UK at the moment saving and budgeting money is more important now more than ever. It has become even more important now to control your spending. With everything increasing in price and salaries staying the same, budgeting is an important way to help see what categories need more money put towards and where unnecessary spending it is happening. With increase debt means increase of risk. In the future debt can affect your ability to save and invest money.
Overall, the four principles of finance are an important starting point to help you become financially stable and monitor your income, spending, savings, and investment and by mastering all of these your financial position should be stable and at a healthy level.
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