Read enough books on financial planning and you’ll soon see a recurring topic – Budgeting
By listing all of your expenses and limiting spending, they say, you can have enough left over to clear your debts and grow rich. On the face of it this is sound advice, after all, no matter high you boost your income, you won’t get rich unless you spend less than you make – and expenses, left unchecked, have a funny way of growing to match (or exceed) the available supply of money.
The problem with budgeting however, is that you end up paying everyone else first – the phone bill, the rent, the credits cards and so forth. Before you know it, there’s too much month left at the end of the money and you’re beating yourself up, promising to do better next month.
If there is one universal truth you can count on, it’s that there’ll ALWAYS be unexpected bills to pay. Lets face it, things are always going to be dropping off your car, schools will continue to plan trips for your kids that you can ill afford and your insurance will always come up for renewal when it seems like you only just paid for last years policy. The fact is, budgeting for expenses and saving with the leftovers does not work.
But here’s something that does.
Pay Yourself First.
Every time you get paid or come into some money, put a fixed percentage of it into a savings account right away, and forget about it. The important distinction is that you put this money away BEFORE you pay any of your bills.
Think of yourself as CEO of a company. As CEO of You.Inc it’s your first responsibility to turn a healthy profit and to become financially secure. Think of this money that you’re putting into this savings account as your profit, everything else you spend after that, on bills and taxes, are the expenses of your company. Only the portion set aside in savings is really yours, but once it’s there let it grow and don’t be tempted to dip in. Be strict.
Isn’t this just a way of fooling yourself? Well, some might see it that way and if you have the discipline to save what’s leftover then try it your way… maybe some months you’ll succeed, chances are however, you wont. By paying yourself first though, you are guaranteed to increase your net worth every month.
Here is a powerful technique to reinforce your wealth building mindset and put this method into action…
First, Take a sheet of paper and tally up the value of everything you have (Assets) and everything you owe (Liabilities). Deduct your assets from your liabilities to determine your net worth.
Next, promise to increase your net worth EVERY month. This is a simple promise but one few people make. Most people promise to make more money, but making more money and HAVING more money are very different things.
Finally, repeat this process and recalculate your net worth on a monthly basis. Once a year is simply not enough.
Counting your money may seem unseemly, and you certainly shouldn’t turn into a miser over this, but it will be a healthy reminder of the progress you’re making and boost your determination.
So, if you’re not doing this right now, try it.
You’ll be amazed at how fast your personal profit account grows