We have all heard the sage financial sound-bytes that seem so powerful and useful. But what do they really mean and how can they be used in everyday life? Sometimes it might not be really what you think, read on for how to put these sayings into practice.
Let’s start with the one that we hear most often – Pay yourself first.
It doesn’t mean give yourself spending money first. In fact, it is just the opposite, pay yourself first really should be save first, spend last. To follow this advice means that before spending any money from your paycheck, you first make automatic deposits to your retirement, emergency, and other savings accounts. After those deposits, you then pay your bills which leaves your spending money for the month.
How do we enact the advice of not putting all your eggs in one basket?
This tip is most commonly used in connection with your investments such as your 401k allocations or other investments such as stocks, mutual funds or bonds. Perhaps a more meaningful word is diversification which means splitting your portfolio between different types of investments and risk categories. Putting the funds in your portfolio into several types of investments helps avoid large losses as not every sector does well or bad at the same time.
What about this one – manage your money, don’t let it manage you?
This is a favorite of all financial experts who talk about managing your money. Basically, until you discover how to budget and then stick to that budget you will have to make life decisions on how much money you have left each month. If you are managing your money, your decisions about life are not controlled by how much money you have remaining.
This is one that is always interesting - A penny saved is a penny earned…
This quote can have a couple of different interpretations but one that might make sense is not really related to how much we put in savings but rather on how we spend our money. If we focus on only buying what we need and not what we want, use coupons and discounts as often as we can, and wait for things to go on sale before buying them, we can save a lot of money. And if you save money by spending less on the things that you buy, it can have the same financial impact as earning more money at work.
Another often quoted saying is to not keep up with the neighbors, how should this be interpreted?
This advice is really aimed at not living beyond your means. Many people justify their expenses and poor financial situations based on what their friends or neighbors are able to do. The point of the advice here to make your own financial plan and base all of those decisions on that plan, not on what others are doing. If you don’t, you often find yourself at risk of financial distress at some point.