The Foundations of Personal Finance: Building Stability and Resilience

12/16/2024

Personal finance is the cornerstone of financial health and independence. Whether you're managing a modest income or a six-figure salary, it’s critical to have a solid understanding of the ‘Four Walls’ of financial basics and the ‘Four Pillars’ of personal finance that can create a stable financial foundation.

The Four Walls

The Four Walls represent your essential needs—the basic necessities that ensure you and your family have a stable foundation to build upon. These are the non-negotiables we all need for a stable life. The four walls are food, shelter, utilities, and transportation.

Without the finances to provide these basics for yourself or your family, the day-to-day cost of living is overwhelming and will affect your ability to work and learn as energy is spent worrying and striving to cover these essentials. Having enough income to provide somewhere to live, something to eat, electricity for warmth and light, and a way to get where you need to go establishes a basic foundation for future financial growth.

The Four Pillars of Personal Finance

The Four Pillars are the structural components of your financial life. An understanding of these four principles is essential for financial success. They’re your income, your expenses, your assets, and your debts and will be the foundation to your ‘Four Walls’ providing strength and resilience.

The time taken to create a budget that examines your expenses in contrast to your income is an important step in finding the proper balance between your lifestyle and income. A firm grasp on these pillars of personal finance will make maintaining the four-wall essentials that much easier.

Income

Income includes the money you earn from your job, investments, or side hustle. Take all of your income into account when establishing a budget. Take special note of income, say from a side hustle, that is inconsistent month to month. Ensure your budget considers the variability of your income and doesn’t rely on your highest monthly earnings every month.

Expenses

Expenses will include the costs of living, think about your Four Walls, and discretionary spending. Create a budget to track spending – all of it! Don’t forget to include items that seem financially inconsequential at the time, like the twice a week coffee run or Friday night pizza.  These smaller expenses add up surprisingly quickly over the whole month.

Once you have a budget, separate your needs from wants and cut unnecessary expenses. Find as much ‘spare cash’ as you can in your budget to put towards debt repayment, retirement savings and an emergency fund. The trick to making your new budget stick is to include ‘fun money’ in your budget. If you have a certain amount of money each month for your social life or hobbies, you’re more likely to stick to your budget in the long run. 

Don’t forget to plan for a financial emergency. Build an emergency fund by starting small by saving $500–$1,000 to handle unexpected expenses, then gradually save towards 3–6 months' worth of living expenses.

Debts

Debts are what you owe, including credit cards, loans, and mortgages. The high interest rates on some debts like credit cards can be eye-wateringly high. Carrying credit card debt is of no benefit and the compounding effects of the interest can make it very difficult to get ahead.

Prioritize paying off high-interest debt first. Avoid taking on new debt and work to tackle debt strategically. Use the Debt Snowball method (paying off the smallest debt first for momentum) or the Debt Avalanche method (prioritizing high-interest debt) to concentrate your efforts on reducing your debt load.

A nonprofit credit counseling agency, like Navicore, can help you create a debt management plan, negotiate with creditors, and provide financial education.

The Four Walls and Four Pillars provide a framework to stabilize and grow your financial health. If your finances are out of control, remember that recovery is a process, not a single event. By focusing on your essentials, creating a plan, and seeking help when needed, you can regain financial control and build a brighter financial future with a strong foundation.

For personalized support, consider reaching out to a Navicore Solutions counselor for friendly unbiased advice. Their guidance can provide the clarity and tools needed to transform financial chaos into confidence.

 

 

 

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