Building wealth will be faster and easier if you know how to save money. You can earn more but if you don’t know how to save, you will end up broke no matter how much money you earn.
This is why you hear stories of some celebrities that seem to have all the money than you could spend in a life time lifetime ending up bankrupt.
A big part of building wealth is determined by your habits. Here are some good ones you can adopt:
Create a BUDGET and Stick to It
I know that you have heard this before but you cannot start building wealth if you have no idea how much money is coming in (income) and how much is going out (expenses). Creating a budget doesn’t take long, but you will need discipline to stay on top of things.
If you have no idea where to start, you can use this simple formula to set up your budget. You can use the 50/30/20 budget rule.
The rule involves allocating your after-tax income efficiently between savings, spending on needs/essentials, and then spending on wants. That is, saving at least 20% of every income, spending at most 50% on needs, and then spending the remaining 30% on wants.
The 20% is for savings. If you have debt, that is included here. Part of your savings includes money that goes into your emergency fund.
The 50% is for your needs and the essentials. This is where you budget things like your rent, utilities, food, transportation, communication and personal effects such as toiletries.
The 30% is for the non-essential goods and services. Items under this category includes, buying a new gadget, and expenditure on luxury and ostentatious goods and services.
For most people, rent or mortgage payment is the biggest expense. Based on the classification above, housing is under the 50% category. Try to keep your rent or mortgage payment within 30% of your annual income.
For now, buying a brand new car is nearly always a poor financial decision. The minute you drive it off, it loses 11% or more of its value. That doesn’t mean you should drive a broken down old hoopty but the focus should be on comfortable mobility.
When you have to buy something, do some research first to find something that will be of good quality. When you buy something that lasts, you save money overall because you don’t have to replace a broken or worn out items as often. Also try to take advantage of discounts. If you’re making a big purchase like furniture, appliances or electronics, find out the best time to buy these things, an example of a good time to target is the black Friday sales. Also, don’t turn your nose up at preowned items.
Have Fun for Free
You should be able to have fun without spending a lot of money. Going for a walk in the park, exploring a new part of your city, exploring a museum or an art gallery is free or inexpensive way to spend time. Hanging out with friends and family shouldn’t always cost a fortune either. Have a potluck gathering, pack a picnic and take it to the park, invite a few people over for board games and order a pizza. These things can all be more fun and cheaper than dinner and drinks.
Choose Your Partner Carefully
Money can be an uncomfortable topic, but it has to be discussed. When things start to get serious, sit down and have a talk about money. Here are some important things to ask: How much do you earn? How much and what kind of debt do you have? How much do you have saved, and where? Do you have an emergency fund? Will we combine our money or leave it separate? Do you keep a budget?
These are just samples of the kind of questions you need to ask and answer yourself when things start to look serious. We just want to make sure that you understand you have to discuss money and be, for the most part, on the same page with anyone you are going to legally bind yourself to.
Your friends and your environment
We are an average of the five people we spend the most time with. To some extent, their habits and behaviors influence our own. That’s why it’s so important to choose your friends carefully. Make sure you surround yourself with people who share your habits and values.
If your friends are all big spenders (whether they can actually afford to be or if they charge their whole lives to credit cards), you are going to spend too much money when you’re with them. If your friends keep a budget and save money for the future, you will be encouraged to do that.