It's the beginning of 2007, the beginning of a new year. It is also a
time when you start to make resolutions or goals for a brand new year.
I am sure among them you might have some that are related to wealth
creation or accumulation. (If not, you better start thinking about that
now).
One of the easiest and powerful way to accumulate wealth is to follow
the "Pay Yourself First" rule, which was one of the teachings Rich Dad
taught in Robert Kiyosaki's "Rich Dad, Poor Dad".
What does "Paying Yourself First" mean and how you can follow it?
Basically, it means you simply set aside a certain amount of money
each month that you will not touch (pay yourself), even before you pay
your bills and expenses (pay others)!
Here's a step by step guide which you can follow:
1. From the amount of money you make each month, you decide how many
percent of your monthly salary or income you want to set aside. When
you get your paycheck, the very first thing you do is to put this
amount aside, hence the "pay yourself first".
The percent to set aside differs from individual to individual
depending on each comfortable level and wealth target. Most people
recommend 10% to 15% of the monthly income to set aside, but I suspect
that you might need to go up to 20% or even 30% if you want to reach
your financial success.
2. Decide what you want to do with this amount which has been set
aside. Many will simply put the amount into their saving accounts.
However, the idea of paying yourself first is to use it for your wealth
building. You should be looking into investing them instead of just
saving them. Saving alone will not help you to reach your financial
success. Let the money earn you more money by investing it. Consult
with your financial planner or advisor to decide the kind of investment
portfolio that suits you.
I would recommend that you setup what is known as an automatic
withdraw from your bank account to your investment institution for your
investments. This is when money is automatically taken out of your
savings or checking account each month and put into your investment.
Generally, you have to select a certain day each month for when the
transaction will occur, and it will happen every month on that day,
just like paying your bills. In this way, it does not rely on your
ability to set aside a certain amount each month. It relies on the
computers who automatically invest your money for you. It is also easy
once you realize how you don't miss the money.
3. Next, you pay off your bills.
4. Live on whatever is left over from your paycheck. It does not
however imply that you need to use up every single cents of what is
left. If you have surplus, then good for you. If you have a substantial
surplus, then go back and re-adjust your investment amount. Increase
you monthly set-aside amount for investment, and let it generate more
money for you.
5. And finally, NO CREDIT CARD DEBT! Don't spend on credit. Also be
very careful with home equity loans and car loans. It's easy to get
into trouble with both.
If you are disciplined, you can pay yourself first without running into a credit rut.
First, keep your personal expense low. Don't go out and spend your
money on "ego" toys like a new car, a new outfit or a long vacation.
Not until the habit of paying yourself first has built up enough
assests for you to afford them.
Second, when you come up short, don't dip into your investment to
pay off your creditors. Robert Kiyosaki believes that if you are under
pressure from creditors, the pressure will actually inspire you to come
up with new ways of making money. Look for other ways to tide over.
As you start to build assets, you will see that the income from
your assets will allow you to pay for your personal expenses and
expanded your means for you to live the livestyle you want.
Paying Yourself First is a simple yet powerful concept. It is so
powerful that it could be apply to other area besides money. You can
apply these same principle to time. Pay Yourself First if you are a
busy working mother. You need time to take care of yourself so that you
can take care of your family!
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