10 Basic Principles of Personal Finance


The principles of personal finance are the grass root guiding the behavior or belief in which an individual handle financial resource effectively.  Therefore to use your money wisely there are a few important truths you need to learn.

Generally, personal finance is a vast topic, and understanding it all could be as obscure as it might stress you. More so, understanding these principles is the very fundamental truth that you need to get hold of. So, what are these vital truths?


Principles of Personal Finance


1. Create and understand your income stream

This first principle of personal finance is very essential as far as managing your finance is concerned. Without income, there will be nothing for you to spend.  You cannot think of a budget or engage in any financial activity without this.

Income is the first thing you put to mind. You need to get a stable means of income and be aware of other various means of earning.  In addition to this, you need to understand the rate at which the income flows.

For instance, an individual who depends only on a monthly salary should be aware that the income rate is minimal. Since the income is limited to only one source.

It might also mean a limit to the rate of spending. If on the other hand, an individual has other means of income apart from his basic means, then the need to always crosscheck the amount realize becomes necessary.

Creating and understanding your income stream could help the individual stand on the road map to fulfill other financial goals.

2. Take control of your needs

Your needs are exactly those things that you desire to acquire with your income. Sometimes we say that human needs are limitless and insatiable. People live every day desiring one new thing or the other.

 Again, sometimes the problem lies in having enough finance to set off those needs, after all, that is the reason we are working hard. Now having assessed your income rate, create a budget for your needs and take care of them. You need to take control of your needs due to unlimited desires and wants, which may overrun your income.

3. Saving is important

While budgeting to take care of your needs also remember, that saving is important. This is another principle of finance to follow. Saving is setting aside some part of your income as security for emergencies or some future expectancy.

Saving may serve as profit from your income although you also benefit from the spending you made on your needs.

Saving is physical cash that creates confidence to face future threats. While savings might seem intricate to meet, you may allot a small portion of your income for savings while the rest goes to other necessities.


4. Balance your loan and income

This principle demands checks and balances. It always occurs on most occasions when someone earns on a monthly basis the need to explore other means of generating income may arise. This situation may call for getting a loan, as the immediate source of income may not finance the project.

In this case, the individual has to take a loan that corresponds with his income. This is to avoid incurring much debt on interest and again to pay off within time.

5. Always budget before you spend

Budget is another important principle of personal finance to consider within the sphere of finance. It has so many advantages over free spending. Most people who understand the importance, usually create budget analysis before income arrives.


Considering budget before spending could help you understand the goals and objectives you wish to achieve and set them first. You can control your cash outflow and avoid unnecessary expenses. An individual is sure of financial stability because there will be a clear account record of unbudgeted expenditures.

When you budget before you spend the ability to control financial activities becomes easier. The individual has to calculate how much money he is making on a daily, weekly, or monthly basis. Then try to spend within the range of those income rates.

6. Plan for future earnings

This principle is necessary, even if you neglect all other principles. Most people believe that financial freedom comes to stay when people engage in independent means of income. What is this all about? It is when they plan for a means of income that entails them being their boss rather than engaging in paid service.

In some other cases if they would vouch for a paid service then it could be one that would afford them to receive a gratuity or pension. An individual will never work for eternity, therefore there is a need to plan for future earnings.

As the years run by a time will come when strength will fail and it is now time to retire home. This is the state of retirement; therefore, it is essential to plan for future earnings. You also need to save by starting early enough at a young age the income that will keep coming when you are no longer fit.


7. Utilize financial literacy

The principles of personal finance require that the individual becomes financially literate. This should have come as the second most important principle to follow as it gives you knowledge on decision-making. Without this, there is no way the individual can better organize and manage any cash inflow.

This simply means that this principle may be void, as it may seem strange to awareness. For this reason, financial literacy is needful for every individual to understand the basic principles. This will help in the effective and efficient management of personal finance.

8. Do not depend on one income

You need to grow your income and strive to achieve financial freedom. What does this entail? It means shooting your arrows at different dimensions that will attract many cash inflow.

Nowadays depending on one source of income cannot generate financial freedom. Again, it can be worse, if it comes once a month. Therefore, the best approach becomes to establish other means of generating income.

9. Consider tax and interest rates

Tax payments on various levels can increase debt and be a nuisance to income generation. Nobody smiles at debts resulting from unexpected budgets. Especially when you have worked so hard to earn then suddenly you receive a notice of tax payment on some service rendered. 

For instance, tax on salaries and other goods and services. Again, the interest you pay on loans you obtain for investments may one way or another affect your income flow. Tax and interest rate is another principle to follow and as an earning adult, you cannot avoid tax payment.

10. Financial security

Taking the right insurance policy could be a good step towards generating safety. It prevents losing much money for health services, fire theft, and weather. Although most people usually overlook these basic, principles as they feel unwanted circumstances may be rare to come by.

Financial protection is one basic truth to consider when handling financial resources for better financial stability.

The concluding aspect

In as much as humans engage in different activities to earn a living, those activities involve a means of creating income. It could be amazing hearing other people tell their success stories about financial freedom. 

The truth is that the problem is not in building wealth but in following the process that will keep the wealth flowing to guarantee success. The process is applying the basic principles of personal finance.