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The Four Principles of Finance


by Suzy Hazelwood | @pexels


There are four principles of finance that can help you maintain your finances to the best of your ability- which is crucial during times like this when facing a cost of living crisis. These principles are income, savings, spending and investing.


Income


Income is the main way in which you can start to build your finances. This would mainly be by working a secure job or side/one-off jobs to earn extra money. Income is the main foundation of these four principles as once you acquire an income- especially a steady one- you can then start to save, spend and invest your money.


Saving




Saving is a financial advisement that is often given. During times like the cost of living crisis, having savings is extremely important as it means you will have an emergency fund to fall back on if, for example, your bills increase to become more than your income and you are unable to pay for them during a specific month. Ensuring that you save money can also help you to keep your stress levels down in some ways. Knowing you have money saved that you can use as a backup can help you to stop worrying so much over how you're going to pay for essentials such as a food shop if you're currently low on money. Savings can help to alleviate financial worries slightly. Having fewer worries about money means that you have more time to find things that you enjoy and can allow for a happier and healthier life. Saving can also allow you to gain more control over your money which realistically, everyone wants! A great way to start saving your money is by budgeting and creating a budgeting plan.



Investing


Investing can be tied to saving. If you can learn to invest your money properly and smartly, there's a higher chance of being able to save more than money just from your income. Investing is important as it can help to grow your money which can help you if you lose your job, money is becoming tight or if you have goals for the future that would require a decent amount of money. Investment can help to beat inflation which is very important in times like a cost of living crisis where prices of everything are increasing and money is becoming a struggle for those all over. This can also help you to settle into retirement nicely. Many older people invest in their retirement as it allows them to be able to pay expenses once they have retired however, for those who are nowhere near to thinking about retiring, there are also other ways to invest your money. This can include investing your money into your goals like buying a house or a car. Many people think that to invest your money, you have to invest large amounts however, this is not the case. Investing can start off with small amounts of money or whatever you can afford to invest each month as even £100 a month adds up over time!


Spending



In terms of spending, the most logical way to control your money accurately is by spending less money than you earn. This is also another area where budgeting is useful. Creating a good and strict budgeting plan can allow you to know how much money you have coming in and therefore will allow you to plan how much money you can spend month to month, ensuring you don't go over and end up going into debt through credit cards for example. Going into debt may seriously affect you in the long run as it may stunt your chances of being able to save or invest in the future.



The four principles of finance are very important if you want to maximise your money and allow yourself to become more comfortable. By using these four principles, there's a higher chance of ensuring that you are able to have money saved in case of an emergency or in case you are running low on money and need to pay for your essentials. On top of this, the future is


unknown and nobody is sure how long the cost of living crisis will last or what the effects will be. This means that having savings, investing your money and spending less than your income can help you significantly in the upcoming future.





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