The Four Pillars of Personal Finances
We talk a lot about personal finance around here at ARIIX. That’s because we truly believe that your maximum potential is reached when you cultivate a strong financial portfolio. But personal finances can get a little confusing and overwhelming, especially if you’re first starting out.
Think of it like building a house, with four basic pillars that hold up your financial “structure.” Everyone’s personal finances are going to look somewhat different, but these very basic principles will apply to everyone.
Pillar 1: Earning.
Just like you have to learn to crawl before you walk, you must earn the money before you can plan for using it. Honing in on your marketable skills, moving up through your chosen career path, and taking on side projects and businesses are excellent examples of increasing your earning potential.
Furthermore, the opposite of “earn more” is “spend less.” So if you find yourself currently with little wiggle room in the “increase your earning potential” sector, tighten up your spending.
In fact, do this regardless! Everyone should look at every single penny earned and fully plan how they are going to use it in order to maximize it. Whether you’re upping your earning or downing your spending, always be on the lookout for widening the gap between inflow and outflow of cash.
Pillar 2: Debt Reduction.
If you’re like most people, you innocently think the next pillar is saving. But that’s where many people get into trouble. If you currently hold debt, you need to throw all your spare change at it until it’s gone. Most financial experts agree that this should be the most important thing to focus on (after earning because you can’t pay off what you owe without money).
Pillar 3: Saving.
Now that you’ve earned the money and obliterated your debt, the next financial pillar is saving. Life obviously comes with expenses, and there’s no way to save every single dollar you make. So the best thing you can do is manage expenses.
Start with a budget. Factor in your absolute essentials that come out of your weekly income. Look at everything you spend. Where can you tighten up? Where can you pull back? There needs to be a very good reason for spending every single dollar you earn.
Once you’ve created a solid budget, start setting aside an emergency or rainy day savings fund. This will help you weather unforeseen financial storms if they should arise. Try setting aside an upwards of 6 months worth of income for starters.
Pillar 4: Investing.
Now onto the fun part. You worked hard and earned money, you put everything you had left over each month toward reducing your debt and are now debt-free, and you’ve stashed away an emergency savings fund.
Money you’ve earned and saved that’s just sitting around isn’t working for you. Investing it lets you grow it to a potentially larger sum for the future. Diversify and broaden your portfolio by investing in stocks, 401ks, IRAs, and real estate, just to name a few. By investing your money, you make it start to work for you.
Like we said, these are just the basic financial pillars. Once you’ve mastered these principles, you can start to focus on other aspects of overall wealth. We hope these pillars help you set up for a strong and healthy financial future.