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Episode 273 - 9 Financial Principles to Live By

Financial stress is a common issue many people face. Whether struggling with debt, lack of savings, or general financial instability, many individuals find themselves searching for ways to improve their financial situation. The following nine financial principles, developed from years of financial coaching and teaching personal finance, can serve as a foundational roadmap to eliminate financial stress and lead a more peaceful, fulfilling life. 

 
  1. Think Differently 

Success often requires a shift in mindset. Many people fall into the trap of doing the same thing repeatedly, remaining stuck in their comfort zones. This often leads to living paycheck to paycheck, minimal retirement savings, and large amounts of debt. To break free, one must start by absorbing new perspectives. Seek mentors, read relevant books, and listen to financial podcasts to understand different ways of managing money. This mental shift can lead to different behaviors essential for financial improvement. 

  1. Have a Plan for Everything 

A proactive life is inherently less stressful. Unexpected events can be managed with ease if there is a solid plan in place. Treat financial planning like maintaining a toolbox; without the right tools, fixing problems becomes a struggle. Key financial tools include a budget, a record of spending, an emergency fund, and appropriate insurance. By accumulating these tools, one can address financial problems proactively and with confidence. 

  1. Protect Yourself from Your Own Worst Financial Enemy: Yourself 

Everyone has unlimited wants but limited means to fulfill them. Often, living in the moment and forgetting about the future leads to poor financial decisions. Recognizing oneself as the biggest financial enemy is crucial. Implementing a budget, using envelopes to control spending, automated savings, and having an accountability partner are all strategies to combat self-sabotaging financial behavior. 

  1. Avoid Debt 

Debt can be a severe impediment to future financial stability. Committing future earnings to pay for past purchases limits the ability to build wealth. Saving consistently to pay for things instead of relying on debt is a much healthier financial habit. Employing debt elimination strategies such as the debt snowball method can help systematically reduce and eventually eliminate debt, freeing up money that can be saved or invested. 

  1. Build Your Asset Column 

Building wealth involves accumulating assets that generate income. Avoid liabilities that require ongoing payments, such as loans for depreciating assets like cars. Investing in assets like stocks, real estate, or businesses that produce income can increase net worth over time. Continuous investment in income-generating assets can eventually replace the need for earned income, paving the way to true financial independence. 

  1. Pay Yourself First 

The concept of "paying yourself first" involves prioritizing savings before any other expenditure. Automatic savings plans, such as employer-sponsored 401(k) plans, help ensure money is set aside for the future. Setting up a separate account for emergency savings is also crucial. Automating these savings processes minimizes the temptation to spend and ensures consistent financial growth. 

  1. Let Banks Work for You 

Avoiding bank fees through proper planning and utilization of free banking services can save substantial amounts over time. Utilizing multiple free checking accounts can provide flexibility and minimize the impact of potential bank fee changes. Setting up automatic payments for significant expenses, like mortgages, can prevent missed payments and associated fees, allowing banks to work efficiently for one’s benefit. 

  1. Scrutinize Financial Advice 

Not all financial advice is created equal. Before following any advice, it’s vital to analyze whether the advisor stands to benefit financially from the suggested action. Seeking second opinions, performing thorough research, or consulting unbiased professionals can ensure that the advice is in the best interest of the individual and not just the advisor. 

  1. Don't Hoard and Don't Be Greedy 

Maintaining a balance between saving and spending is essential for financial happiness. Extreme frugality can lead to misery, just as overspending can create financial chaos. Striking a balance allows for enjoying the fruits of one’s labor now and in the future. Additionally, giving and helping others creates a sense of fulfillment and helps shift focus from self-centered concerns to broader community welfare. 

Conclusion 

Implementing these nine financial principles can lead to significant improvements in financial health and overall well-being. Consistent application can help achieve debt freedom, build a secure emergency fund, and create wealth, leading to a more enjoyable and less stressful life. By focusing on these foundational principles, financial stability and happiness become achievable goals. 

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Episode Transcript: 

Chris:  

Are you frustrated, or maybe even stressed, with your financial situation? If you're listening to this podcast, my guess is the answer is probably yes. Well, that means that you are at some point along your financial journey where you're trying to fix your financial problems for good. Well, today I want to share with you nine nine financial principles that I have developed from years and years of being a financial coach and teaching high school students about personal finance. These principles can be a foundational roadmap to help you get rid of that financial stress and live a more peaceful and fulfilling life. Let's talk about the nine financial principles that I believe everyone should follow in today's podcast.

Chris:  

This is the Debt-Free Dad podcast, where we help normal, everyday people like you yes, like you take control of your finances so you can live a happier, less stressful life. My name is Chris Hawkins and I will be your host for today's episode. From 2005 to 2008, my wife and I paid off just under $100,000 in debt under $100,000 in debt and we have been debt free except for our house now for over 15 years. So, as I mentioned in the intro, I've done financial coaching. I have taught high school students personal finance for good gracious, about 13 years, I have my own financial journey, and as I begin to teach this and as I begin to read things from other sources talk to clients, talk to other financial coaches, listen to podcasts I came to the conclusion that, basically, in order to fix your finances, in order to live that less stressful life, there are some things that you have to do, and those things can all be boiled down into one of nine financial principles, and so what I want to do here is I want to share with you those principles, real briefly, because I could spend a whole podcast, I could spend 30, 45 minutes talking about each one of these in detail, but today what I want to do is share them with you briefly, give you a couple of ways that you can implement each of these nine principles so that you can get out and get started trying every one of these principles out.

Chris:  

So let's start with number one Think differently. Think differently is one that you've probably heard me say over and over again if you've been listening to this podcast for any amount of time. We all know how to be average. Average is doing the same thing over and over again it's being stuck in your comfort zone. It's doing nothing to excel, doing nothing to stand out, and financially well, it means living paycheck to paycheck, having little in retirement, maybe nothing, having less than $1,000 in savings, living with large amounts of debt and constantly being stressed. So to be different, you've got to act differently, and I always tell people if you want to act differently, you've got to start by putting new things in your mind, and you've heard me say this on multiple podcasts in the past. One thing you can do is look for people who've done what you want to do, or join the Roots program or get into some of the Facebook groups or some of the discussions. Ask people in the Roots how they've done what you want to do, ask questions, read, listen to this podcast, find mentors and learn from them. This podcast find mentors and learn from them, and doing this will it'll start to put a new perspective in your mind, that you can accomplish things and that managing your money is very much different than what you thought. And that will force you to think, and when you think, you will begin to behave differently.

Chris:  

So, financial principle number two have a plan for everything. You see, a proactive life is a less stressful life. So imagine that something happens unexpected one day and you don't sweat it, you don't panic. Why? Because you prepared for that ahead of time. So I want you to think of having a plan for everything, like having a toolbox, and without the right tools, it's kind of hard to get anything accomplished. When something breaks and we don't have the tool to fix it, well, life becomes more difficult. But you see, having tools in your toolbox is not just enough. You've got to have the right tool. If you're trying to turn a nut or tighten a bolt and all you have is a screwdriver, well, you're going to probably be frustrated. So, financially, you need your toolbox to contain a budget or a cash flow plan, a record of your spending. You need an emergency fund. You need a debt reduction, debt elimination or debt snowball plan. You need the appropriate insurance, debt elimination or debt snowball plan. You need the appropriate insurance, a sinking fund and a will. So begin today to accumulate those financial tools that's necessary to help you address any problem in the future in a proactive way.

Chris:  

Way Number three protect yourself from your own worst financial enemy yourself. You see, everyone, every one of us. We have an unlimited amount of wants and deep down inside, we know that we are never going to fulfill all of our wants. We are never going to be 100%, completely satisfied, but here's the thing it doesn't keep us from trying. You see, it's much easier for us to live for the moment and forget about the future, and that mentality it keeps most of us from ever. It keeps us from ever accomplishing anything great. So we have to recognize that. The person in the mirror well, that person's our enemy, and we do more harm to ourselves than anyone else. We've all had moments when we made a financial decision that we knew wasn't right. So if you want to improve financially, you've got to address the real enemy yourself. So if you want to improve financially, you've got to address the real enemy yourself. So, again, begin by preparing a budget or a cash flow plan. Use envelopes to control spending, pay yourself first through automated savings, Get yourself an accountability partner and, most importantly, have an emergency fund.

Chris:  

So, number four avoid debt. Debt robs us of our future. We commit money that we earn in the future to pay for something that we bought in the past. Now, having no payments, having no debt, well, that's going to allow you to build wealth. So save up to pay for things is a much better way to manage your finances by saving consistently. Your assets will one day buy you things. Interesting concept there. So work to get yourself out of debt Again.

Chris:  

Use a debt elimination plan or a debt snowball. Start with the smallest balance. Continue creating a list of all of your non-mortgage debts, with the largest being at the bottom. Pay the minimums on all debts and use any any extra money that you can find to pay off the debt at the top and, once that's paid off, roll all of that extra money to pay off the next smallest debt. Here's the thing. Eventually, you will have no debt and when you have no debt, all of that money that you were paying to banks whether it's student loans, credit cards, car loans guess who gets to keep that money. And you can save that money and use it to pay cash for your next car, to build a larger emergency fund, to build wealth and maybe even fund a college fund for your kids. Pretty cool, right, all right?

Chris:  

Number five build your asset column. So financial principle number five is build your asset column. There, financial principle number five is build your asset column. There's an old formula in accounting. If you ever take accounting, you hear it from the very, very beginning and you can apply that same formula to your life, and it says that assets equals liabilities plus net worth, and so this is how you calculate your net worth From a textbook standpoint assets are things that you own that have value.

Chris:  

Now I read a book by Robert Kiyosaki Rich Dad, poor Dad and most of that book I really didn't agree with practically everything he was saying. But there was one little nugget in that book and I always try to find something from any book, even if I disagree with most everything and from that book the little nugget that I took away is to define an asset not as something you own that has value, but rather something that you own that makes you money. So ignore that standard definition and when you get yourself out of debt, when you get an emergency fund, you can start buying things that make you money. That's going to help you position yourself to one day live without having to work. So many people try to accumulate assets by using liabilities. So, for example, I'm going to borrow money to buy a car, because they think of a car as something they own that has value, but with it comes a debt and that's all. A liability is. So the only true way, if you use that formula to build wealth is to buy assets and avoid liabilities. Buy things that make you money. Do so without borrowing money, and your net worth will go up. And if you continuously buy assets, one of these days your net worth is going to be able to replace you, so that you can truly retire without having to worry about where the money's going to come from.

Chris:  

So financial principle number six is pay yourself first. You see, you work hard for your money, and when you get to the end of your life end of your career probably a better way to put it are you going to have anything to show for it? Now, the first time I've ever seen this term pay yourself first was way back in a book written in 1926 by George Clayson. It was called the Richest man in Babylon. That's the first time I ever saw the phrase pay yourself first, and since then there's been thousands of financial professionals who have preached the merits of saving first.

Chris:  

So if you're out of debt, or when you get out of debt and you have your emergency fund funded, a great way to pay yourself first is to have your employer withhold 15% of your income to fund an employer-sponsored retirement account, such as a 401k or a 403b. Now let's suppose that you're not out of debt. Maybe you're trying to build your emergency fund. You can have your employer direct deposit money into a separate account, separate from your main checking, maybe a savings account, where you can then use that money only in emergencies. And so, by having your employer send most of your paycheck to one checking account and the rest of it to a different one, this helps you protect yourself from your own worst financial enemy, which is yourself.

Chris:  

Now, principle number seven let banks work for you. We freely give money to banks in the form of interest fees, overdraft service fees, atm fees, over-the-limit fees, late fees here a fee, there a fee, everywhere a fee fee. Well, if we plan appropriately, if we save for emergencies, if we track our spending and we avoid non-mortgage debt, we can limit how much that we pay to banks. In fact, we can completely eliminate it altogether. So keep your savings and emergency funds in free accounts.

Chris:  

Try opening free checking accounts with multiple banks so that you can quickly switch from one if a bank imposes new fees. I would say about 10, 12 years ago we had a bank that we were banking with and they decided to start charging an ATM fee, or a debit card fee, actually and so we already had a separate account at a different bank, and it made it real easy for us to transition. And unfortunately for that other bank, they did that for about two months and they lost so many customers that they did away with it, but by then we had already switched to the new bank or the second bank, and so we try to keep multiple checking accounts open for this reason. Now, if your bank or if your mortgage, I should say is with a bank, you can open a free account there and have money deposited directly into that account every paycheck. So, just like I mentioned, pay yourself first. Let's say that you have a mortgage through Chase Bank and you don't bank through Chase. At Chase, have your employer deposit part of your paycheck into that account and then go into your Chase online profile and set up the payments to happen automatically. Automation is one of the best things that you can do, and it's free at most banks. So if you can automate the entire process so that you don't have to remember to make the payment and you don't have to pay the bank to do that, what a great benefit. So the principle number seven is let banks work for you. You don't work for banks.

Chris:  

Number eight before following someone's financial advice, ask yourself if they will benefit if you follow their advice. Now, it's sometimes necessary often necessary to pay for professional advice, and paying for advice up front is different than someone giving you advice that benefits them monetarily if you follow that advice. So, if you're ever offered a suggestion, if you follow that advice. So if you're ever offered a suggestion, ask yourself if that person is going to benefit financially and, if so, take the time to thoroughly analyze their recommendation. Instead of giving you the right advice, you might just find they gave you the advice that's going to benefit them financially. You might also conclude that the advice benefits both of you, and that's okay. Now to find out, ask a mentor, look for new information or seek out other opinions. If possible, pay someone else who won't benefit from the advice that they give In the end. Here's the important point In the end, if you're still unsure, ignore the advice. You see, you might miss a great opportunity. Might being the key word, but there's a much better chance that you will have shielded yourself from bad advice. So, before following someone's financial advice, ask yourself if they're going to benefit if you follow their advice? If the answer is yes, get a second opinion, take your time, do some research or look for someone who is not going to benefit and get their advice and, if necessary, ignore the advice. It means you probably aren't going to get taken advantage of.

Chris:  

And number nine, the last of the nine financial principles that I think everyone should follow Don't hoard and don't be greedy. You have to spend and give. You see, you don't have to be a miser to win financially, and you've heard us preach this on this podcast many, many times. You see, people who hold on to the tightly well, they're generally pretty miserable as well. On the other hand, people who spend on to the tightly well, they're generally pretty miserable as well. On the other hand, people who spend everything that they make are also miserable. So both extremes lead to stress and fear, and one fear is losing everything, while the other fear is not being able to pay their bills. So we've got to have a nice mix of spending and saving. You're never going to stick to a plan. You're never going to be successful financially if your goal is to not spend anything. You're just as miserable as the person who doesn't have money to spend. So you've got to find that nice mix between spending money and saving money, and those complement each other very well and they lead to a very fulfilled life. You know you've got to enjoy the fruits of your labor now, but also in the future.

Chris:  

Now, additionally, you need to give and help others. Now. You may not be able to do that initially. You may be working your way out of debt, you may be working your way towards building an emergency fund, but if you will do everything that we teach in this podcast and everything in the roots of personal finance, one of these days you're going to find yourself being able to give on a level that you've never been able to before. You see, giving also allows us to focus our attention on others, because people who give tend to be less selfish, and a less selfish person cares more about the needs of those around them. So giving allows us to serve others. So if you truly want to be blessed, you have to give, save and spend. So real, quickly.

Chris:  

Let me go back through the list of the nine financial principles. Number one think differently. Number two have a plan for everything. Number three protect yourself from your own worst financial enemy - yourself. Number four avoid debt or get out of debt. Number five build your asset column. Number six pay yourself first.  Number seven let banks work for you. You don't work for banks. Number eight before following someone's financial advice, ask yourself if they're going to benefit if you follow their advice. And finally, don't hoard and don't be greedy. You have to spend and give. If you will begin to implement these nine financial principles into your life, I think that in a very short amount of time, you're gonna start to see some success. You're gonna have more victories than setbacks. In one of these days, you're going to be out of debt. You're going to have more victories than setbacks and one of these days, you're going to be out of debt. You're going to have a fully funded emergency fund. You're going to build wealth. You're going to have more fun than you ever thought and you're going to be able to help more people than you ever thought.

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