3 Principles of Personal Finance

I’ll be honest, i’ve never liked the idea of Black Friday weekend.

Growing up, i always associated it with ridiculous scenes where people generally act like fools to try and get a discounted TV or whatever. You couldn’t pay me to put myself in that situation.

Though Black Friday originated in the USA, per the graph below from Statista.com, every year in the UK Billions of pounds are spent.

I’m not saying it’s wrong to spend money or get a good deal on something that will bring you joy. I just think people should have a solid financial base in place generally before allocating their funds to material goods.

So, in the midst of such a consumerism focused weekend, i think it’s worth briefly going over some key personal finance principles that if adhered to, will put you on the path to lasting financial security and wellness.

Money

1. Spend Less Than You Earn

It seems a simple and basic concept, yet so many people struggle with living below their means.

This is mainly down to a lack of both oversight and understanding of your regular levels of earnings and expenses.

Whilst there are people who track all outgoings every month religiously, i’m willing to bet that the vast majority of people spend little to no time actually going through their bank statements and fully understanding where they spend their money.

Without knowing where your money is going, how much is going to core bills, groceries, leisure activities, eating out, social events etc, it becomes more and more difficult to gain control over your finances and ensure you’re being financially responsible.

How much less to spend than you earn is generally dictated by a savings rate that you choose for yourself. In my last newsletter (https://zenmoneymindset.beehiiv.com/p/saving-25-goal) i make the case for why i think this should be 25%, but the actual rate depends situation by situation.

Personally i’ve found the easiest way to achieve this is by paying yourself first.

Put simply, if you earn £3000 net (aka what arrives in your bank account) per month and you want to achieve a 25% savings rate, paying yourself first would mean the day this money arrives you would send £750 to a separate savings or investment account.

2. Protect Against Disaster

As my one of my favourite film characters Rocky Balboa once said, “Life ain’t all sunshine and rainbows”.

Things will go wrong as we go through life which have an impact on your financial health and well-being.

More often than not, this won’t be in your control.

Helping family & friends who are in need, unexpected housing repairs, loss of income, medical issues leading to a reduction in the amount you can work…do you get the picture?

Protecting against disaster means that when something disastrous happens, you are prepared and ready to deal with it and have the financial resilience to not let it derail your life by having to go into debt to survive.

In practice, what i’d say this means is;

• Making sure you have a fully funded emergency fund of 3 to 6 months

• Having Life Insurance if you have people who are dependent on you financially (aka a spouse, parents, kids etc)

• 3. Build Your Savings & Invest Wisely

This is too broad a topic to cover here, but i want to talk about what investing wisely actually entails.

Investing to my mind is not limited solely to the financial realm. You can also wisely invest in close relationships, education, health, new experiences, mental well-being and overall fulfillment with life.

Whether it’s in these areas or financial investing such as into the stock market, purchasing property or investing into businesses, there is always going to be an element of risk and reward

With everything, there is a cost of inaction that is often overlooked.

Financially, the cost of inaction and not wisely investing is that any money you earn and save is going to reduce in terms of real value due to the compounding effect of inflation.

The saying goes that for the average earner, it is impossible to save your way to wealth. Inflation is the reason why.

Bank savings accounts do offer some interest on money stored there, but at best these rates are only barely covers inflation and at worst inflation is greater, meaning that the real value of your money is actually decreasing.

Investing in the stock market, and in cash generating assets etc does indeed come with a degree of risk. In terms of how much to invest and how much tolerance you have towards risk, this is again an individual preference or choice.

What i’m trying to get across is that there are no easy paths. Invest and risk not getting the returns you wanted, or don’t invest and see your money eaten up by inflation.

If you follow principles 1 & 2, you put yourself in a much stronger position to be able to handle a little risk in the pursuit of building lasting financial security

Mindset

I’ve called these Personal Finance Principles, instead of rules, for a particular reason.

Although both determine the way you act and take decisions, in my mind there is a distinct difference.

Rules are imposed externally, and generally must be obeyed in order to avoid incurring some type of penalty or punishment.

Principles on the other hand, are internal and force you to do what you think is right and correct.

Building a good relationship with money and a stable financial future is not an easy endeavor. There will be many challenges and at numerous occasions you will not want to do what is required.

When times like these occur, i firmly believe that someone who has fully embraced the principles of personal finance is much more likely to succeed than someone who is simply following some arbitrary rules they have been told they need to follow to get wealthy.

If you want to create something lasting and worthwhile, it’s better to base it on principles.

See you next week,

Zain

PS: Thank you to everyone who booked a coaching call! I honestly find it very exciting to be able to help people achieve their goals and overall feel like they’re in a better place in life

If any new readers would be interested in some 1 on 1 coaching, fill in the following form and i’ll be in touch .https://eu.jotform.com/form/233086136375054