5 Principles of Personal Finance

Adhering to the 5 Principles of Personal Finance™ empowers clients to navigate the constant changes in their financial world. These foundational principles provide them with the knowledge and tools to make better decisions and will lead them to become and remain financially free.

What Are The 5 Principles?

Principle #1


Saving is the first step towards financial freedom.

Most people don’t inherit financial freedom. They start by earning money, through a job, a profession, or owning a business. Then comes the biggest challenge, and what Tony Robbins calls “The most important financial decision of your life.” “The decision? What portion of your paycheck you get to keep. How much will you pay yourself – off the top, before you spend a single dollar on your day-to-day living expenses?”

This is much easier said than done. It takes a Profit First (Michalowicz) mentality. To be successful at saving, it must be first. In other words, saving can’t be an afterthought. It can’t be last, if it is to work.

Saving must also be systematic and automatic. Our process teaches clients how to be successful at paying themselves first.

Principle #2


What could go wrong?

On our path to financial freedom there are a multitude of issues that can arise and either destroy the plan or seriously impede it. What are those things? Economic recessions, job loss, death, lawsuit, disability, accidents, major health issues, among others. How prepared are most people for those types of events? Not well at all.

There are three reasons people don’t have their maximum protection:

  1. They don’t know their options (financial ignorance).
  2. They think it’s going to cost too much (it’s the perception of cost that prevents them from obtaining their maximum protection).
  3. They don’t think it’s going to happen to them…at least, not yet (feelings of optimism and invincibility – unfortunately, bad things happen to people all the time that didn’t plan on them happening).

We take the time and have a clear and organized process for teaching our clients about their maximum, and we give them the opportunity to obtain it. This is the role of a Principles-Based Financial Planner™. Our job is not to sell a policy to a client. It is to help them obtain their maximum protection. The best financial plan is the one that works under the most circumstances.

Principle #3


How can I enjoy the wealth I create?

That’s the question that the majority of the financial services world doesn’t want to answer. Why? Because financial institutions and money managers don’t want their clients to “enjoy their wealth.” Enjoying their wealth would mean pulling it out and spending it for the things it was intended. Enjoying their wealth might mean donating the money to charities, or spoiling grandkids. Nope! That’s the opposite of what financial institutions want. Financial institutions simply want our money, and they want to hold on to it for as long as possible. They have an inherent conflict of interest. When clients use their money, financial institutions and money managers lose revenue.

How do they convince people to give up the use of their money? By making them afraid to use it. One of the most common strategies employed to accomplish this objective for financial institutions is called “self-insure.” Self-insure really means that a person is going to use their assets to insure their survivors, instead of life insurance, which was specifically designed to guarantee the replacement of assets and income.

When a person self-insures, they feel they can’t use their assets during their lifetime. In essence, they are using a screwdriver to hammer a nail. Sure, it can be done, but a screwdriver wasn’t designed to do it. Life wise, self-insuring using assets is much less effective and efficient than life insurance at replacing assets and income.

We help clients understand which strategy is most efficient when it comes to insuring their assets and income. We help them understand how they can better utilize their assets while they are living, versus trapping their money in financial institutions for the financial institutions’ sake. Following this principle gives the client the control and use of their wealth.

Principle #4


Cash is king!

Most people like the idea of having money work for them. However, they usually don’t get to that place. Because they follow the recommendations of financial institutions, they end up always working for money, and not the other way around.

In order to have money start working for them, clients must build up sufficient liquidity to handle unexpected life events. For most people, they simply go into unwanted debt as a result of 1) following the guidance of financial institutions, and 2) not having sufficient liquidity. They end up paying interest their entire lives instead of earning it.

Cash is king because it prevents unwanted or unproductive debt. Cash is king because it allows people to live a much less financially stressful life. Cash is king, because those who have it, have opportunity.

Principles-Based Financial Planners™ teach clients the importance of building and maintaining liquidity. They realize that cash is king, not because of the rate of return, but because of the opportunities and the unnecessary heartache and stress that can be avoided in life because of it.

Principle #5


The Movement and Multiple Uses of Money

Financial institutions practice a “Do what we say, and not what we do” dogma. Again, the agenda of financial institutions and that of the individual consumer is at odds. One of the major reasons most people will never become financially free is because they are doing what financial institutions want them to do. They are putting their hard-earned dollars into places where they are restricted from use for long periods of time (even decades), have little or no expertise, and little or no cash flow. Would a financial institution ever do that? No! Why not? Because they know what it takes to create wealth, and that’s not the recipe.

What is? Velocity of money. Contrary to the philosophy promoted by all financial institutions, velocity of money is about cash flow. It’s about getting your money back, as quickly as possible, and then using it again and again. It’s not about “compounding interest” and hoping for appreciation of assets. It’s about putting money into real assets that produce positive cash flow.

Unfortunately for the financial services world, real assets can’t be sold or managed by them. Real assets are one’s own business, one’s own property, one’s own profession, and one’s own ideas. The tax code was made for people who invest in real assets, and it was written against those that do what financial institutions want them to do.

As a Principles-Based Financial Planner™ we teach our clients that financial freedom is the objective, not retirement. Financial freedom is achieved by having assets that produce sufficient income to sustain or even improve a person’s lifestyle.