Continuing on with my “Money series” designed primarily with advice for my kids as they get older (good, common sense advice that you better listen to guys!):
The easiest and most effective way to manage your money is the concept: “Pay Yourself First”.
In our faith, we have taught the kids that the first concept to understand about money is that what we have is a blessing given to us (of course hard work does play a role) and we must acknowledge that first and foremost. So, in our house the concept of tithing is the first step: 10% right off the bat. The rest is then “our own money”. Interesting in the book “The Automatic Millionaire” By David Bach, he talks about the concept of “tithing” as well, suggesting to set aside 10% of your income to contribute to a worthy charity. The idea of tithing helps put everything in perspective right from the get go.
But before we start breaking anything down from there and start “living within our means”, we set aside some savings money. This concept is what made the Wealthy Barber so famous: set aside 10% for savings – regardless of anyhing else. You won’t even miss the money if it is set aside from the get go.
When you get paid, you set the 10% aside as if it is not yours. Then you budget the rest. Even if you don’t choose to budget anything afterwards, you have already set aside 10% so you are a winner!
It’s best if it comes off your paycheque and you never see it. But if that is not a possibility, then get your bank to remove it as soon as you are paid. If that doesn’t work, then as soon as you get paid, manually move it yourself to another account. However, the concept behind the “Automatic Millionaire” is that if it is not automatic, it won’t happen. From personal experience, I know. You have to be seriously disciplined to move it over yourself. It will always feel like you don’t have enough. So, just having it done for you is often the only way to ensure it is going to get done.
We already do this with allowance money in our home: tithing, then a minimum of 10% for longer term savings (the savings that goes into the savings jar in our bank basket and then gets tranferred to the bank account at the end of the year). Then the kids divide their money again: save for something specific (if they have a specific item they are saving), or just putting it their wallet for future spending.
As adults, it is important to keep this up. Just do it. Many say they can’t afford to do this – but trust me, once you do it, you won’t miss it. You just learn to live on 10% less.
It’s easy to say you will do it as part of a budget, or if there is any money left over, but that often does not happen – so just do it up front. Make it automatic and watch it grow.
It will add up very quickly and you won’t regret it. Promise.
