by Pam on August 21, 2009
What does it mean to pay yourself first? Rather than taking care of your bills and expenses each month and
then seeing if you have any money left over to invest and save, paying yourself first means you put aside some money for saving/investing as soon as you get paid! If you do that, then you know you will be able to tuck some money away for retirement as well as build up an emergency fund.
An easy way to pay yourself first is to set up an automatic withdrawal from your checking account on the same day you get paid. That way you won’t even miss the money because it will be like you never had it in the first place.
Even if you are on a tight budget it is important to pay yourself first. It may seem impossible on paper, but you need to do it. In Rich Dad Poor Dad, Robert Kiyosaki talks about a time when he and his wife had almost no money but they still insisted on paying themselves before paying their bills. Their bookkeeper at the time thought they were nuts. But look at them now! They have successfully learned what habits contribute to building wealth.
If you’re not already paying yourself first, I recommend that you take some time to look at your budget and set up an automatic withdrawal each month to start saving and investing for the future, even if all you can do is put aside $25 per month. It’s better than nothing, and as you progress you can increase the amount you invest.
by Guest on August 15, 2009
“I will be rich if I strike the top prize in this week’s lottery!” That seems to be the most usual exclamation from fellow workers looking for a quick way to escape the rat race.
Thinking back, is wealth really measured by how much money you have in the bank?
A lot of us usually think that wealth is signified by the possession of a lot of money or owning a lot of luxurious items. We have often associated wealthy people with the luxurious house, big car, expensive jewelry they owned or the posh restaurant, which they dine in, etc.
For Robert Kiyosaki however, the concept of wealth is defined simply as “The number of days you can survive going forward if you stop working today”. It is not measured in dollars and cents, but by the number of days, which you do not have to work! It is not your conventional definition, which you might have expected but I must say that this is very logical and common sense!
Based on my understanding of Robert Kiyosaki’s definition of wealth and the concept of income and expenses, I see the amount of money one has, formed just part of the wealth equation. We also need to look at the other part of the equation, which is the outflow of money, i.e., expenses. The number of days we can survive if we don’t work is dependent on the amount of money we have and the amount we spend.
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Wouldn’t it be nice if there was a specific formula for making millions of dollars? “If you want to become a millionaire, all you have to do is A, B and C.” You know . . . . “Go get a degree in small-business management, talk to Jim at the bank to set you up with a Subway franchise, and invest in Microsoft today because it will skyrocket tomorrow when they report earnings.” Unfortunately, life is just not that gravy. The good news is there are some defining characteristics, habits and belief systems that self-made millionaires share in common. Take this a step further, and I believe almost all self-made millionaires’ financial success boils down to one thing.
Now, I’m not talking about the 0.5% of “self-made” millionaires that hit the lotto or scored big on buying Microsoft at its lowest-low and selling at its highest-high. I mean the people that sacrifice, slave, and sweat their way to become financially free. I’m referring to the people that spent 20-30 years on a strict budget, giving up everything to build successful businesses – all the while living well below their means, and doing it happily at that.
What makes these people not want to spend the money they worked so hard for on a nice car or an extravagant dinner? Why would they choose to read Money magazine and study business over watching the NFL draft? This lifestyle just sounds boring and exhausting. After all, what’s the point then of being filthy rich?
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Building wealth has very little to do with how much you earn, and a whole lot to do with how you manage the money that you earn. People with six figure incomes can be living from paycheck to paycheck while people with modest incomes can be accumulating a great deal of wealth. Here are some behaviors that will help you to accumulate wealth:
1. Pay as little tax as possible by taking advantage of the tax breaks and tax rules.
2. If you have difficulty saving, think of creative ways to eliminate wasteful expenditures. The key is to always spend less than you earn.
3. If you get a raise, bonus, or a large tax refund, don’t spend it just because you have it. Instead, save it and invest it wisely. You don’t have to increase your expenditures just because you suddenly earn more money. Most millionaires live well below their means, driving older vehicles and living in modest homes.
4. Make contributions to tax deferred retirement plans so you can get some of your money back. Use that money to pay off a chunk of your mortgage or other debt.
5. Credit can either be used to set you back financially or it can be used to help you build wealth. Rather than racking up credit card debt to purchase consumer items (bad debt), use debt to finance an investment in real estate (good debt). It’s important to be mindful of the difference between good and bad debt. Good debt is debt used to purchase assets that can generate cash flow. Bad debt is used to purchase liabilities such as furniture that will depreciate in value.
