There is something anyone can do to make themselves wealthy. It’s really easy in principle, but in practise it’s a Herculean task. But it’s only difficult because of the way people handle their money.
Imagine your typical payday.
First thing you do is log in to your online bank account and check your balance. As it shows, the numbers are as you expected – your salary has come through. Then, the first thing on your mind is paying off the bills: rent, electricity, internet, and many others. Next would be food, because of course everyone has to eat to live. And all these other things get in the way: “I want that shiny Samsung S7! Now I can buy it!” Or, “Great! I can now put on a downpayment for a nifty BMW!” Or, “I can finally go on that trip to Paris!” And many other things. Later on, you feel your head sink, realising that you’ve spent more than you intended.
The next payday, all this may happen again.
With all of your money going into other people’s pockets, how else can you build your own wealth? You might say, “I’ll keep saving and investing, but not now; there’s too many things I need to spend on.”
Is that so? Do you really “need” to spend on those things? That’s what most people think about when earning money. They earn so they can get the things they want. Not that there’s anything wrong with working hard for the things you want; it’s the right thing to do. What’s not good, though, is neglecting this very simple rule of building wealth.
It’s called “pay yourself first”.
This means setting aside a portion of your income before spending it on anything else. Let’s say that, for a start, you want to set aside 10% of your salary as savings. It’s very simple: once your salary gets into your bank account, take 10% of it, and hand it over to your savings account. That’s how you pay yourself first – put those savings in first, before doing anything else.
It’s also good practise to not just leave it in your payroll account. More often than not, you’d accidentally spend it on something unnecessary. If you must have a separate bank account to do this, then open one. Also, don’t touch the money in this account unless you really have to, like in a health emergency.
Another example. Let’s say you got a raise, and now you decide to set aside a further 10% of your income for stock investing. Same thing: as you receive your salary, pay yourself first: Take 10% of it and deposit that in your savings account, and take another 10% and use it for your stock portfolio.
With that money out of the way, you now force yourself to work with what’s left.
This time, you can go ahead and pay the bills. Afterwards, what remains will be your so-called “disposable income”. This money is at your disposal, and you can use it however you like. Eating out, buying yourself a new pair of shoes, taking a short weekend vacation, or anything else; it’s up to you.
Before you know it, you’ll have cut back a lot on unnecessary spending. And if you just keep on doing this over and over again, you’ll end up with enough savings to, perhaps, start your own small business in the UK. You could also invest in additional assets to keep on making passive income for you.
And it just keeps getting better.
Certainly you’ll earn additional income from your business, investments, and other assets. The same rule of “pay yourself first” applies. Take a percentage of the income you get from each, then put them away as savings and reinvest in other assets. Also, reinvest them in your business: buy better equipment, hire more people to help you out, or upgrade your services. This way, your business grows. In turn, your wealth grows too.
Always pay yourself first. That’s the simplest and most effective way to make yourself wealthy.
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