I began writing today’s post on the topic of diversifying. It made sense to go there after speaking about the basics of assets last week. Then it hit me that I haven’t written about the basics of all basics.
Save your damn money.
From a book that has withstood time in the world of personal finances, Richest Man in Babylon, comes the first rule in increasing your wealth, or ‘fattening thy purse’:
Save no less than 1/10th of each paycheck
If you have an income, you have an opportunity to increase your wealth. Sometimes life leaves us living paycheck to paycheck, and we can’t fathom saving a portion of it. If this is the case, or if you haven’t put much thought into consistent saving yet, here is a small piece of guidance to hopefully persuade you to start.
Always pay yourself first.
Have you fallen into the routine of promising yourself to save some money next paycheck? Then the next paycheck comes, and after rent, utilities, loans, groceries and maybe a few nights out, you have no money left… until the next paycheck, right?
If this cycle sounds familiar then you haven’t yet developed the habit of paying yourself first. Your thought process is likely to save/pay yourself with what’s left over.
Take 10% and put it into a savings or investment account that you vow not touch before spending your income on ANYTHING else.
No matter how small or large the portion is of your paycheck, if you take it out AS SOON as the money comes in (or even the day before), you’ll quickly adapt to living without it. It will soon become a habit, and you will seamlessly adjust your life to living without that 10%.
FAIR WARNING: You may feel an unwillingness to do something different than what you’ve been accustomed to doing your whole life.
Ignore the excuses your mind makes up. If you really have to, find an expense to cut. The sooner you get started, the better off you will be.
According to a recent Bankrate survey, only 23% of Americans have an emergency fund to cover six months of expenses. The majority of Americans don’t have nearly enough money to retire.
Paying yourself a small percentage of each paycheck is NOT immediate gratification. You will have to fight the urge to break the process of learning a new habit.
If 10% is easy for you, increase the amount until you’re putting away as much as you can without negatively impacting your life.
The goal is to get to the point where your savings are on autopilot in the same manner that your bills are.
“But I can’t keep up with my bills already!”
Financial experts suggest to pay yourself first anyway. The same way you’ve figured out a way to get by and pay your bills thus far, if you pay yourself first and treat it like a bill you HAVE to pay, you will figure out a way to make it work. Most likely it will demand a combination of earning more and cutting costs.
Don’t know where to start?
I like to think of my financial goals like filling one bucket to the next bucket. I’m goal oriented, I like crossing things off the list, and I’m competitive with myself, so the bucket visual motivated me to go after my financial goals.
First Buckets First
Hypothetical example: fill your first bucket before any large purchases.
The below example is hypothetical and will vary depending on what stage of life you are in. But first things first, your first bucket should always be to save 6 months of expenses.
Bucket one: save 6 months expenses
Bucket two: start an investment account (outside of your 401k or pension)
Bucket three: vacation
Bucket four: invest in real estate funds
Bucket five: invest in markets outside the US
Start small, put your savings on autopilot, and start a habit today that will change the course of your life.
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