The NIL Principle

November 11, 2006 at 8:02 pm 1 comment

You might be thinking, what the heck is the NIL principle? It’s quite simple actually and has to do with spending, or the control of your spending. In order to succeed financially, you have to control your expenses. You have to change your behavior so that you are not spending everything you make. And, it all starts with the NIL principle.

N-I-L stands for three words: necessities, investment, and luxury. Before you spend any money, that money you worked so hard to earn, classify the item you wish to buy into one of those three categories. In order to this correctly, you have to first define what fits into these categories.

Necessities are essential to our survival, in other words, they meet our most basic needs. Things that fall into this category are food, shelter, clothing and transportation. In Maslow’s Hierarchy of Needs, this falls into the lower level needs. Without meeting these needs first, one cannot progress to the higher levels of success. Be honest about what is truly a necessity and what is not.

Once the most basic needs are met, the next level of the NIL principle is investment. An investment is something you put money into that will pay you a dividend. People quite often mistakenly classify items as investments. Anything that requires constant funding with no return, is not an investment. Real estate and mutual funds are investments. Your home is not an investment, it is shelter, therefore a necessity. It is costing you mortgage payments, insurance, property taxes, furnishing, utilities, etc.

The last level in the NIL principle is luxury. Once the basic needs are met and you are investing, you can reward yourself with some luxury purchases. This can be anything you want, a luxury car, a home theatre, a cruise to the Bahamas, or whatever you would classify as a luxury item.

Great financial success can be reached be following this basic principle. Use it everywhere you go and with everything you buy. Make it a habit and you will succeed.

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Entry filed under: Budgeting, Frugal Life, Saving and Investing, Spending.

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