What I learned about money from my Grandfather
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The topic of money or more precisely how to save your money has been overblown, made to be so much more complicated than it is. If you hop on the internet and look up how to save money you will be barraged with offers for high interest rates savings, investment funds and all sorts of people saying they are the best money managers in the world.
But when you get right down to it all the that is just noise and that noise stops you from hearing the simple truth about how to save money. The simple truth about how to save money can be summed up into two phrases
· Pay yourself first
· Don’t spend more than you make.
It is really that simple
It is so simple it is hard for people to wrap their brains around. We have this idea of money as this hugely complicated thing that defies the attempts of the common person to understand. But when you dive past all the financial advice, gimmicky strategies and get rich quick schemes and get right down to the nuts and bolts you find that it really is that simple.
Pay Yourself First
I cannot emphasize enough how important paying yourself first is to saving money. If you don’t pay yourself before any other bill and I mean any other bill you will find it next to impossible to save money. Paying yourself come before the mortgage or rent, before the groceries, before the credits cards,
This might seem a bit shocking to you but I am serious paying yourself first is more important than all of that.
So how do you pay yourself first?
Well these days assuming you have a checking and savings account at some financial institution then you need to set up automatic withdrawals.
Automatic withdrawals are a wonderful usually free service that the bank offer that will move money for you every paycheck, ever month or even daily if you want to go through the hassle of setting it up. I personally have around 275 dollars a month being pulled from my checking on the 1st of every month. This money then gets put into savings or used to buy more investments at my Vanguard account.
This happens without me even thinking about it anymore and it will keep happening as long as I have money in my checking account. But doing this first thing every month it takes the responsibility away from me to try and save money and I can spend the rest of the months pay without worrying about it.
Don’t Spend More Than You Make
I know duh right but if you take a look at the amount of consumer debt in the USA it is obvious that most people do not subscribe to this philosophy. Keeping your spending within the limits of your income is critical if you want to be able to save more than what you already paid yourself.
This is where the budget comes in as a tool to help you figure out where your money is going and how not to spend more than you make. When developing a budget, the items on the budget should be ranked in the following way,
5. Everything Else
On first glance you might think this list is bit skewed; how is savings placed ahead of housing and food? You must eat and you must have shelter in order to survive but you don’t need savings to live day to day. But if you think about it we as a species have had savings in one form or another since the dawn of agriculture. One form of savings was to build homes and other structures so they last centuries not decades another was to store agricultural products to eat or barter with in the future. These are forms of saving for the future that have nothing to do with money but they are savings no mistake about it.
You probably noticed that my budget list is short on detail. Well I figured out a long time ago that for me having a detailed budget is not useful or productive for me. Tracking every little penny was not something that I needed to do in order to save money. If you pay yourself first and you don’t spend more than you make you will by default save money without following a budget. The only time a budget is useful is when you aren’t paying yourself first and do spend more that you make. A budget can be a tool that can get you to that point but once it is reached a budget is no longer needed.
The moral of the story
Saving money is so simple it is hard and people make it so much more complicated than it really is. If you follow the rules of paying yourself first and not spending all your money the default will be that you will save.
Anyone can do it no matter what job they have or where they live you can find a way that works for you. So get out there and get to it that bank account wont fill itself up.