If you want to become financially successful, there are some basic financial principles that you need to know. You need to be financially literate! But that is still not enough. You need to apply these principles consistently over time to achieve financial success. Here are the three important financial principles you need to know and apply to achieve financial success
Principle #1: Financial Planning
You need to have a plan for every money that comes into your hand or your bank account. Don’t spend impulsively! This is one major difference between the rich and the poor. The rich plan and manage their finances. The poor don’t!
Every money that passes through you can be categorized into one of the following:
(1.) Income – Money that comes to you
(2.) Expenses – Money that leaves you
(3.) Savings – Money that you retain or keep for the future.
(4.) Investment – Money that you convert to wealth that can bring in more money.
Principle #2: Financial Stewardship
Anything that is well managed will grow with time. If you manage your personal finances well, your net worth will grow with time. To achieve financial freedom, your income needs to grow at a rate faster than your expenses. In summary, here are the steps to financial freedom
1. Create a stable source of income: Get a job or do a business that brings in money regularly.
2. Save money regularly. Develop a habit of always saving some portion of every money you earn.
3. Make your money work for you through wise investments.
4. Diversify your investment portfolio to create multiple streams of income.
5. Protect your investments. Get a lawyer!
Principle #3: Wealth creation
To be financially successful, you need both money and wealth. Money is the instrument for transfer of wealth. You need to convert some of the money you earn into wealth that will create additional streams of income for you. That is what we call wealth creation. The seed capital for wealth creation can be; (1) money from your personal savings, (2) a loan (3) investment by someone else. The surest way to raise seed capital to create wealth is through your personal savings. You can start to create wealth today using your financial resources, time, effort, ideas, skills, talents, knowledge, and experience to develop an asset or to build a business which has the potential to appreciate in value over time and to yield a return. Your wealth determines your net worth.
EduTimes Africa, a product of Education Times Africa, is a magazine publication that aims to lend its support to close the yawning gap in Africa's educational development.
