Archives For Paying

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.

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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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When you hear Wi-Fi, Bluetooth, 3G, highspeed, high definition, 1080p, Blueray, LCD, Smart Phone, and iPad, what comes to mind?  First thing I think of is high priced toys.  These gadgets are a weakness of mine, but my wife could take them or leave them.  I tend to spend money, where she would rather do without to save money.  Have you ever bought something, thrown a party, or taken a vacation with a justification of we deserve it?  There is nothing wrong with rewarding yourself or loved ones by splurging on material items or going on a nice vacation, but it should not take precedence over being fiscally responsible.  It is acceptable to reward ourselves once we reach certain financial goals set from a previous year or once we meet an investment goal.

Spending – Controlling spending is difficult for most of us to do.  After reading the book The Millionaire Next Door by Thomas J. Stanley and William D. Danko, I decided to work on my spending habits.  Believe me, some days are better than others when it comes to being disciplined about spending money.  This book suggests that the majority of truly wealthy individuals do not live as if they were wealthy.  Only a small percentage of them live extravagantly.

Finding the proper balance between the money we invest and the money we spend on material goods can be challenging.  There are two different ways we can assess our spending habits.  We can lower our standard of living in order to be able to create excess cash to invest.  You can impose a strict budget for your family or you can increase you means in order to maintain your desired standard of living while having a targeted amount that you choose to invest yearly.  My wife and I are trying to increase our means in order to maintain our current standard of living and increase the amount of money we are investing.  We believe that life is too short to live under a stressful budget in order to find the additional money to invest yearly.  That doesn’t mean that we do not have a budget, we do.  We choose not to drive fancy cars, throw parties for people that may or may not be friends, and choose not to dress to the “T” daily, all of which costs money that would come out of our investment funds.

Our primary goal for increasing our means is to generate additional money to invest.  I hope that our investments provide enough passive income to be financially free so that we do not have to work for a paycheck.

Paying Down Debt – I had always made paying my debt my first priority.  If I had any money left over I would “invest” what little money we had in the stock market until we needed the money to pay down our debt again.  The problem with keeping your debt paid down without changing your spending habits is that it creates a vicious cycle of reckless spending.  If you are like me, you will find very little if any additional money to invest.  While reading Robert Kiyosaki’s book Rich Dad Poor Dad, he discusses paying yourself first.  It took me a while before I realized how to pay myself first.  Paying debt remains a very high priority, but I do not pull money from my investments to pay my bad debt.  Just as a reminder, bad debt is debt that we pay ourselves and good debt is debt that someone else pays, simply the debt of an asset.

Saving We are all taught to save money from a very young age.  I suspect that one reason we are all taught to save is because we all have been influenced directly or indirectly by people that had experienced the great depression.  After experiencing the great depression, many people preferred the security that comes with saving money.  There are still several people today that are so risk adverse that they prefer to save money rather than “invest”.  I spoke to a colleague of mine that was telling me how they where investing in a CD, Certificates of Deposit.  If they are lucky, the interest that they earn will be equal or slightly greater than inflation.  As you can see I am not a proponent of saving money.  The only thing that I use a savings account for is to hold enough money for my next investment.

Investing – There are many vehicles for investing.  We all have to find our niche to become a successful investor.  I am currently going through the growing pains of investing.  I am learning tons through experience and reading.  I recommend that you do your homework prior to getting into an investment.  I had always been taught that investing had to be risky, but I am not sure that is entirely true.  The more informed you are about your investments, the more you lessen your risks.  The more control you have over your investment also lessens your risk.  For example, when buying stocks in the stock market we have very little control of our investments.  The only control we have with stock is the timing and the price we pay for a given stock and when we sell the stock, not necessarily the price we get for the stock.  This is not to say that I do not invest in the stock market, but I limit the percentage that I have in the stock market at any given time.  We all know someone that is waiting to retire because they did not feel like they had enough money to retire due to our current recession.

I recommend doing your research on each investment, read to increase your financial knowledge and get experience by investing.  Do not be so risk adverse that you are afraid of losing money.  We all are going to lose money in our investments from time to time.  Learn from the variables that cause you to loose money and avoid making the same mistakes.  There are no get rich quick formulas.  Just be persistent in you pursuit to financial freedom.

Feel free to visit my blog at http://followmyinvestments.com

The primary reason for starting this blog is to force myself to write down my thoughts on my investment process.  I hope to get the same value from writing this blog as I would by writing my Business Plan.  By writing about my investments, it forces me to think more about my investment values.  I am a strong believer that your subconscious works on problems that are not intuitive until you understand the problems that you face.  By writing this blog I hope that I become a more informed investor.  This blog is not meant as a recommendation for anyone and their investments.  It is just a way to share my investment thoughts with the internet community.

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www.DrewBerman.com http (203) 244-5405 One of the reasons my team and I have been so incredibly successful lately is that we’re always tuned in. We have libraries of the best books, DVD, and CD programs out there. One foundational book is Robery Kiyosaki’s Rich Dad, Poor Dad. In it, Kiyosaki describes some core distinctions between how more affluent and less affluent folks approach payday. Give this a look and let me know what you think.

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