When navigating the realm of personal finance, it’s easy to get lost in a sea of terms, adages, and sayings. While some may be immediately clear, others can be more nuanced. Understanding the meaning and intent behind these phrases can significantly enhance your ability to manage your finances effectively. After all, enduring proverbs and sayings often encapsulate timeless wisdom, simplifying complex financial concepts and providing practical guidance. Here are 12 of the most popular financial proverbs.
- “A Penny Saved Is a Penny Earned” – Highlights the value of saving money as equivalent to earning it. If you earn it, but end up spending it, then it is effectively being wasted. In other words, you are earning it twice, first when you earn it, and second time when you save it.
- “It’s Not How Much You Make, It’s How Much You Keep” – Focuses on managing and preserving wealth, not just earning it. We have all heard about the comparison between those making a lot but living paycheck to paycheck, as compared to those making much less but being much more efficient with their money. The latter come out ahead in the long term, thanks to their focus on their savings rather than how much they make.
- “Live Below Your Means” – Encourages spending less than you earn to build savings and avoid debt. Just like the above, it is not so much about how much you make – though that is important – but more about how much you keep from what you are earning. Making $100K a year but spending $110K is not something you can sustain for long. On the other hand, making $50K a year and only spending $35K of it, while saving and investing the rest, will put you on a path toward financial stability and long-term wealth
- “Save for a Rainy Day” – Advises setting aside money for unexpected expenses or emergencies. We have all heard of an emergency fund, and while the term may bring negative connotations, you can call it whatever and however you see fit, as long as you know what it is for: it is not to be dipped into for your next vacation. But more to be used in case something arises that wasn’t expected, be it a job loss, an expensive car or home repair, etc.
- “Debt Is the Worst Investment” – Highlights the financial detriment of high-interest debt. While some interest is good, such as a mortgage, using high interest debt to purchase things is not a wise strategy and will cost you a lot in the long term.
- “Pay Yourself First” – This concept prioritizes savings or investments before other expenses, and I can’t stress it enough. It’s something we’ve covered on more than one occasion, and many self-made millionaires or those who have achieved financial freedom cite it as a key factor in their success. If you’re not prioritizing this yet, start right away. You’ll be glad you did in a few years when you see your savings and investments grow significantly.
- “Set Financial Goals” – This emphasizes the importance of defining clear objectives for managing and growing your finances. It comes down to psychology: your brain works more effectively when given specific goals. Instead of setting vague goals like “I want to retire rich at an early age,” try something more concrete, such as “I would like to achieve financial independence by age 40, generating $3,000 in passive income every month.”
- “Track Your Spending” – Advises monitoring and recording expenses for effective budgeting. Doing this ensures you are aware of where your money is going and helps you identify areas where you may be overspending. By keeping a close eye on your spending habits, you can make informed decisions, adjust your budget as needed, and ensure that your financial goals remain on track. Tracking also prevents unnecessary expenses from creeping in and gives you control over your financial situation.
- “Your Net Worth Is Your Financial Health” – Importance of understanding total assets minus liabilities as an indicator of financial stability. Get into the habit of calculating your net worth on a monthly basis, or at least quarterly or semi-annually. Doing this gives you a good reflection or where you are in relation to your financial goals and milestones.
- “Don’t Spend What You Don’t Have” – Advocates for spending only within your means and avoiding credit or loans for purchases. This aligns with the principle of living within or below your means, but the key difference here is the emphasis on resisting the temptation to rely on credit for non-essential purchases. While credit can be useful in emergencies or for investments that generate long-term value, using it for day-to-day spending can lead to debt accumulation and financial stress. By committing to only spending money you already have, you build discipline and ensure your financial health stays intact.
- “The Best Investment You Can Make Is in Yourself” – Encourages spending on personal development, education, and skills to improve earning potential and financial security. While the theme of this blog is usually about budgeting, personal finance and money in general, we often talk about the role of personal development in getting you to the next level and better version of yourself.
- “Plan for Retirement Early” – Advises starting to save and invest for retirement as early as possible. The younger you start, and the more you save and invest early on, the sooner you’ll be able to retire and with more money, providing for a better and more enjoyable retirement. Compound interest works best over time, so starting early allows your investments to grow exponentially, giving you more financial security and freedom when you reach retirement age. Planning ahead also reduces the stress of last-minute saving and ensures you’re prepared for a comfortable future.
Coming up in a future post, we will go over some of the most popular sayings, proverbs and adages, but this time from the world of investing.