Universal Principles of Finance: Part #1

by RJ

in Psychology

IĀ  just got done reading a thought-provoking book, Personal Development for Smart People. Unlike other personal development books I have read, the author Steve Pavlina, says that there are 7 universal principles that can help us grow in any area of our lives. Therefore, the same 7 principles that we apply to improving a specific area of our life-like our health, we could also use to help us grow financially.

I’m reading this book now for a second time threw and applying the lessons learned to just my finances. I have learned so much, that I thought it was worth blogging through the book (aka Julie and Julia) to try to show you how these 7 universal principles can be applied to your life financially.


The first principle to growth is to realize where you are right now.

I know this sounds like common sense but it’s so easy to deny weaknesses that you have financially. After you have come to truth with where you’re at, you can start taking actions to improve your situation. However, if you continue to deny yourself the truth of your current situation, you can’t make good decisions to improve on your situation.

Components of Truth

The book then continues to dive deeper into how to begin to find the truth. According to Pavlina, there are 5 components:


One reason I recommend for you to calculate your net worth, is it gets you look at your overall financial health. Once you come face to face with your current situation, you then have desires about which way to go next.

Say you calculate your net worth and it happens to be negative. This then triggers the desire to get your net worth positive. You then decide that your next course of action is to pay off any outstanding debt.

At the end of the day, your actions are based upon what you perceive to be true. If you can’t recognize the areas that financially need improvement, you can’t make good decisions about what steps to take.

A good exercise is to just ask yourself what you like and what you want to change about your current situation financially. It’s not important right now to set specific goals, just be truthful to you.


Predictions are an important part of personal finance. I love the way, Pavlina explains prediction:

“Prediction is the mechanism by which you learn from experience, thereby enabling you to discover what is true. As you observe any new situation or event, one or two things can happen: either the experience will meet your expectations, or it won’t. When an experience meets your expectations, your mental model of reality remains intact. When an experience violates your expectations, your mind must update its model of reality to fit the new information.”

There are two ways to form better predictions. First, embrace new experience, which can help you form better patterns of thinking. For example, when I first read the book, Your Money or Your Life, it updated my reality of my financial situation. There were a few concepts, like the Crossover Point, that were new to me that triggered desires.

Second, you need to be able to make good predictions. For example, ask yourself where you honestly expect to be financially in a year, 5 years, or 20 years if you continued on the same path financially.


Thanks to Monty Burns and other over generalizations about rich peopleĀ  the media portrays, you may think that becoming wealthy is a bad thing. However, do you really know how it feels to be wealthy if you have never experienced it?

Assumptions are everywhere in finance. For example, I recently wrote about how I thought assuming a 12% rate of return is overly optimistic. I made this prediction based on what I have read or experienced in the past. However, there is no way to know if I’m right or wrong, I’m just making an assumption.


If you continued your current financial habits, do you accept the long-term consequences?

For example, say you refuse to save for retirement today. Do you accept the consequences of your actions?


Major financial decisions, should be made at a higher state of consciousness. This is why I recommend that anyone who has just received an inheritance, to wait 6 months before doing anything.

Right after someone close to you passes away, is no time to make a major life decision. There are too many emotions that one can have that can affect the decision.

Your best chance of success comes making decisions when your mind is at a high state of awareness.

I will be continuing this series Wednesday.

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