Save money first!
Do it, and you will feel better. Actually, your pocket will definitely feel lighter and your
net-worth will skyrocket as you start investing your savings. Do not just keep them in your bank account, inflation will eat them. Inflation is hungry and will not spare your money. However, inflation or not, it is likely that you will spend them.
Let’s take a step back. Why do you spend? It is a psychological craving that needs to be satisfied like the physical craving born by watching the yummy cake placed on the table in front of you at your friend’s wedding. A spending craving is something ephemeral, and if you cease to the temptation it will make you poorer. Conversely, if you do not spend, you will have more money and more choices later. And the effect is double. You earn twice.
Firstly, you do not buy stuffs which leaves you with less money, secondly the more money you have the more money you will be able to make.
You will probably go in life by spending lots of money on useless stuffs that will definitely make you poorer and poorer. You have to make an effort by thinking twice before you buy stuff and ask yourself the question: is what I am buying going to increase my wealth and make myself a better person? 99% of the stuffs that people buy (and that you probably buy) are going to make you poorer. And, on top of this, they will steal your time, that is one of your most precious and scarce resources.
Let me explain with an example: you have $300 and you want to buy a nice TV because you want to replace the old one. So, you buy it. There are 3 effects coming into play here:
You are $300 poorer. Which is bad!
You will spend time watching TV (because you do not want to feel guilty by not using your newly purchased TV). More time wasted on TV translates into less time invested on building up your wealth. Which is very bad!
You will increase side costs: risk of smashing it and having to replace it, as well as electricity costs.
The only positive side of swapping your old TV for a new one is actually selling the old one, provided you remember and are willing to do so. Do sell it no matter the price, sell it. That cash will reduce the bill of the new TV. And if you can, just sell the old TV and invest those money.
Bottom line: save first and only spend what is left after you have achieved your preferred saving rate.
Are you struggling on setting your saving rate? It is easy and fun, decide the amount you want to save either in monetary terms or in percentage terms. Then go do it. Save that amount.
Let’s say you have net monthly cash inflows $1,450 (e.g. salary + other income coming from investments + your grandma/pa or parents cash allowances + anything else that is cash positive). A very good saving rate is about 1/3 of the money that you receive overall every month. In this case it will be about 30% or $435 (30% x $1,450).
Set up your Saving Rule and do respect it, no matter what.
In one year time you will have $5,220 ($435 x 12 months) in savings. This is awesome per se and it is awesome for several reasons also:
You have achieved what you set up to achieve (abiding to your Saving Rule). Celebrate;
You are richer than 95% (almost everyone) of your peers that do not follow any saving rule;
Your attitude will change for the better. You will feel mentally lighter and more powerful which will bring positive things in your life.
Now enjoy your journey toward a wealthier life. Kick it off!
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