When it comes to subjects concerning how to get rich, we tend to think about things like business building, hot investment tips, multi – level marketing, panning for gold in the Yukon, etc… The practice of saving to get rich isn’t the sexiest. But statistics show it’s one of the most surefire ways to do so. It’s slow and boring, but you will surely get there as long as you stick with it.
One of the first personal development books I’ve ever read was “Rich Dad, Poor Dad” by Robert Kiyosaki. One of the biggest ideas the author wanted to instill in his readers was the concept of paying yourself first. I went on to see that trend in many financial self help books that I read after that. You may not know it yet, but by the end of this document you will feel satisfied, as you learn how to make yourself rich by paying yourself first.
How much to pay yourself.
The standard amount to pay yourself is 10%. Statistically, this general number is enough for most people to make themselves financially well off over time. To illustrate, if you work for an hour and you’d be making 0 per paycheck; which translates into putting away of that paycheck on a regular basis.
Everyone can live off of 90% of their income.
It may take some adjustments to get to the point where you’re living off of that amount, but it can be easily done. Having a clear budget or spending plan will help with this. The better you can track your money, the more money you will realize that you can free up. For instance, many people don’t realize how much they’re spending by purchasing lunch at work.
Take this as an example. Bill buys a meal at work every day. That habit can go on to cost him per week. Or you can look at it as every two weeks. That’s plenty of money that you can be putting towards your savings. If you put that amount away at 10% yearly compound interest, you’ll save ,476.35 in just 5 years! That supersized burger and fries you’re stuffing your face with truly worth it?
Using the magic of compound interest.
Once of the best quotes I’ve heard about compound interest came from Albert Einstein. He said it’s “one of the most powerful force in the universe.” Compound interest works like a snowball, it builds on itself and builds faster as it gets bigger. Interest gets added on top of interest already accrued. When it comes to any sort of investing, this is one of the most basic things that people need to understand.
Make it automatic.
To make the habit of paying yourself first easier to stick to; take yourself and will power out of it. Most jobs employ a direct deposit system set up that lets you split your paycheck between different accounts. You should set it up so that 10% of your income goes directly into a savings or money market account. If you’re a business owner or self employed, then you should work that into your accounting process.
Make sure it’s pre-taxed income.
When you put away 10% of your income, ensure that the amount of what you put away gets taken off of your gross income (amount of income before taxes). If you take off your net income (amount of income after taxes) you will only cheat yourself.
Don’t make it liquid.
Generally, human will power isn’t known to be the strongest. So taking will power out of the equation as much as possible is usually the route I like to coach people to go with. Try to keep your money in some sort of account or investment vehicle that carries a penalty on withdrawals. When temptation comes around to push you backwards, it’ll make you think twice before you do damage to all the hard work you put into your savings.
There’s an old Zen proverb that I like. It goes like this, “When is the best time to plant a tree? Twenty years ago. When’s the second best time? Now!” The best time to start paying yourself was probably as soon as you started earning any money at all. But that shouldn’t stop you from ever starting. You’ll be amazed of how fast compound interest will grow your money. The earlier you get started the better. So put away 10 cents when you make your next dollar.
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