I've read dozens of books on finances and attended many seminars on the topic. They all mention one principle that will change your life: pay yourself first. The Richest Man In Babylon, Secrets of the Millionaire Mind, The Wealthy Barber, and many other famous books on finance all say that you need to be paying yourself 10% of your income and re-investing it. Yet, I've noticed that VERY FEW people actually do this. It amazes me. I've been doing this since I was 18 years old and I've never lived any other way. The truth is, if you're not saving or re-investing your money, then you aren't getting ahead. You can't be living pay check to pay check and expect any progress financially. The goal of the game is to accumulate assets and to build your net worth. If you can accumulate assets that pay you a dividend, cash flow or passive income, even better. To achieve this, you need to be managing your money!
There's been many formulas thrown out there on how to effectively allocate your income. I've personally used the model taught by T. Harv Eker in his book Secrets of the Millionaire Mind and at his Millionaire Mind Intensive seminar. It goes like this:
55% of your income goes towards necessities (rent, food, cell phone, etc…).
10% of your income goes towards long-term savings (for security, not for risky investments).
10% of your income goes towards financial freedom (real estate, stocks, mutual funds, businesses, etc…).
10% of your income goes towards having education (books, seminars, courses, trainings, coaches, etc…).
10% of your income goes towards fun (enjoying life and giving yourself pleasure).
5% of your income goes towards giving (charities, foundations, making a difference, etc…).
The reality is, most people have 80-100% of their income going towards necessities, which is scary. Again, most people are living way beyond their means. You may have to simplify your lifestyle and cut back on things, so that you can take some of your money and invest it effectively, or even invest it in yourself. If you want to learn more about this, I'd recommend either the book The Richest Man In Babylon or Secrets of the Millionaire Mind. If you get a chance to attend the Millionaire Mind Intensive, do it it's one of my favourite seminars ever!
The key is to develop the HABIT of managing your money. It doesn't matter how much money you make. In fact, you can often get ahead of others that make more money than you, simply by managing your money more effectively. If you don't master these skills, you're going to get in trouble financially. You often hear these crazy stories about people winning the lottery and losing it all within a few years. How is this possible? It's because they haven't developed the HABITS to be able to effectively manage that amount of money. They don't have the discipline and mentality for it.
It's not until you've proven that you can manage the money what you currently have, that you will start to earn more. Build the foundation for yourself now, make wise financial decisions, allocate your money effectively, and you'll be able to be financially free. I've done this for over 10 years now and I am in a better financial situation than all of my friends who are many years old than I am. It's not too late to start, do this stuff now!
