Be wealthy today – by cutting your paycheck in half..

To be wealthy every day of your life, you need to have some savings aside. It is simply not easy to go day to day without any money saved. Even $100 is enough to start with. Don’t have even that? Start with $1. You don’t have to be financially free to feel wealthy, you need to have a sound financial system in place to be wealthy. Learn to save money, invest it, and reinvest it starting this month.  

When do you save money? When you receive your paycheck, or when all the bills have been paid off? Success books will tell you to pay yourself first, to cut off a part of your paycheck as soon as it arrives or automatically to a savings account. But, what to do with all those bills and expenses that usually exceed your paycheck?

To be able to build a safe, healthy and wealthy life day by day, the success books are right. You must do all of the above. In fact no matter how successful you are, if you cannot save a steady portion of your income, invest and reinvest the returns, you will never be able to improve your financial life.

How much to cut?

Brian Tracy says you should start saving from this month’s paycheck, even if you start to save 1% and live on 99% of your income. This saved amount will not be a burden on you and you get into the habit of doing it on monthly basis. Then you can increase it to 2%, 5%, 10% until you are able to save larger amounts steadily of your income for “investing”. Tony Robbins mentions that the ratio of how much you save should depend on the phase of your life (for example, young, middle age, old), and how much money you can put away.

A younger person should be able to save and invest more than an older person with established life and expenses. An example of a financially free successful businessman and investor, Robert Kiyosaki (Author of Rich Dad Series) says he tries to save and reinvest close to 80% of his income. I say, if you are young then you should be able to save 50% of your income. Saving 50% of your income will significantly improve your life quickly. Any smaller amount would lead to longer time for accumulation.

There is no way I can cut 50% of my paycheck! Where do I get the rest of my expenses?

Rule number 1 in Robert Kiyosaki’s book “Increase our Financial IQ” is to make money. If you cannot save and live at the same time on the remaining 50%, then you need to make more money. A compounding difference can only happen if you save a large portion of your income. I have seen people become happier and relaxed and wealthy by cutting a large amount of every income they get (I like 50% because I have used it for years and I have seen the effects it can have. The key to improved life is by building capital, investing it, and reinvesting the returns. This money should not be spent ever again!

Where to invest?

I won’t recommend a business, real estate or stocks for investment because it all depends on you. I have tried all three and others, and each has its own pros and cons. The most important questions to ask yourself when thinking about where to invest your money and time are the following:

Can you invest time only to start? Money can fly from you much faster than the way it came.

If you can learn and test the market of what you are going to do by investing only time and gradually putting money in, then you will be confident to invest more as time goes. Do NOT spend money first, unless you are ready to see it walk away from you.

Can you invest time and money in something you like to do forever? Would you work in this field for free for at least 5 years before you reap any rewards?

What you do on the side has to be absolutely rewarding mentally and emotionally. You are not looking for another job which you don’t want to go to. You are looking for a way out to something that makes you work and enjoy, even after a full day’s worth of work. 

Does the knowledge of this field fascinate you? Do you intend to work hard to learn all the market details and become an expert in this field?

You will need to learn everything in any endeavor you are going to take. You will need to study the market, the customers, the suppliers, business management, the opportunities, the ups, and downs, etc. This knowledge can become your new expertise and you may even shift jobs to similar areas so both your job and your part-time investment are feeding your brain of knowledge that helps grow your investments. For example, if decide you are going to invest in real estate, you might want to consider a career move to the real estate business. If you are going to invest in selling products online, why not work for an online retailer who has a similar supply chain (so you can use that knowledge to build your business).

Note: make sure you are not violating your employment contract by having a similar business to your main employer.

Do you already have a competitive advantage?

It would help you immensely if you have a competitive advantage that you can build on in your new venture. For example, I used to watch my father manage the construction of our house and I enjoyed every moment of that, now I develop real estate with my partners and supervise overall work progress and enjoy every moment of that. I even know where problems may arise, even if I am not an engineer. I also have expert partners who have been in the field for 20+ years which I am lucky to work with. That’s a competitive advantage.

I have always enjoyed teaching and had taught for years before I got busy with my career. I now write as an alternative way to benefit others. This is me working as a teacher and building on my family’s heritage (both my father and grandfather were teachers for 20+ years – so it might be a gene issue). This is another competitive advantage. What’s your competitive advantage?

Ok, I have started my business, what should I do with my returns?

Your money working for you is like you cloning you. If you made a good living you have to teach your money to become as smart as you are or even smarter. The more money you make from your investments the smarter your money is. There are two kinds of returns you will get. Return on time and return on money invested.

I will start with the later, money coming in from your investments, automated stores, and other passive income projects should go directly on top of your investment money – no cutting, no spending, etc. You should never touch that money other than to invest it back again.

However, money from businesses, 2nd job, online blog, and any other work that requires your time and needs resources to run, should follow the same rule like your paycheck. For example, if you are cutting 50% of your check for investments, then money from the business, or other “work” should also be cut in half where one-half goes to your investment bucket and the other half goes to your expenses.

Your knowledge about how to deal with money is not going to be learned in one day. You might feel like spending money when you see it and it will bother you when it is just sitting there especially if you are squeezing yourself to live on a certain percentage of your income which you were not used to.

Try to start earning 1% on your money, then 5%, then 10% until you are confident to go to more complex investments and more rewarding investments. Remember that money flies away faster than it came in. You must watch your money very closely. You should spend as much researching an investment as much as it took you to make that money in the first place.