Do you feel like you are not saving enough money? Despite your hard work and dedication, it seems that your expenses is always more than what you earn. “The Richest Man in Babylon” book has 7 practices to cure that. I’ll try my best to explain these as applied to our current time.
- Start to save money. Make it a conscious effort to spend less than what you earn. This is related to what I discussed in lesson 2, wherein you need to save at least 10% of your income, as you begin to afford to set aside more, than that would be better. By regularly setting aside 10% of your income, in time you will be able to accumulate more riches, if you invest this in the stock market, the stock price appreciation and dividends you will earn and re-invest will keep on growing and thus grow your net worth. What would you prefer? Buying the latest gadgets and clothes or would you want to purchase income-generating investments like stocks?
- Control your expenses. Have you noticed that most of us who are not yet financially literate have the same problem of having little or no savings? This, despite us having different incomes, some earn more than the others, but all have the same problem of lacking money. An interesting note from the book and which I totally agree with is that our expenses, which we call necessary, will grow in proportion to our income, the bigger our income, the bigger our necessary expenses unless we think otherwise and control our expenses. Don’t be confused between what are actual necessary expenses and luxury expenses. You and your family’s wants will always be more than what your income can afford. Therefore, not all of your wants will ever be fulfilled. Create a budget based on the 90% of income you have and live on that budget. You can budget the 90% as you wish, balance it between necessities and luxuries. In the long run, you will feel good that the 10% you are setting aside and investing is already growing.
- Multiply your savings and investments. The savings we get from setting aside 10% of our income is only the start, it is the earnings we get from these investments is what will build our fortunes. This is where the magic of compounding interest comes in, if you keep re-investing all the earnings from your investments, your investments will keep on compounding and thus making your money work for you.
- Ensure that your investments are safe. You need to make sure that you carefully review where you invest your hard earned money. Avoid scams, once again, if an investment is too good to be true, it probably is. Make sure that the principal you invest will be easily withdrawable anytime that you need to. Also, make sure that your investment earns a fair amount of interest. Consult with other people who have made similar investments, their wisdom will protect you from unsafe investments.
- Own your home. Make it a priority to invest in purchasing your own home. Paying monthly on a housing loan is wiser than paying rental on a property that won’t become yours in the end. Rather than renting, pay monthly and think of the long term, wherein you get to own the property you are paying for.
- Invest for your future. It is inevitable that all of us will reach our retiring age, wether it be retiring from your job or retiring from your business. Make it a point to invest while you are in your earning age so that by the time you reach retirement, you will already have a consistent source of income to support your non-productive years, at the same time enjoying your retirement years.
- Invest in your education, increase your income. Don’t stop investing in educating yourself on money matters. Always invest in books, seminars and other training that will increase your knowledge in investing and therefore increase your income in the long run.
These are the 7 practices you can start now to increase your net worth. Follow these, and you will surely grow your income and be prepared for the future.