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Savings – Pay Yourself First!: Budgeting 101

[pro-player]http://www.youtube.com/watch?v=Z-xC_-yKmuI[/pro-player]

You have all heard or read it before: the best way to build wealth is to pay yourself first! Made popular back in the 1920’s it really didn’t take off until the 1990’s with David Chiltons book The Wealthy Barber . With advancements in technology and  payroll systems, the ability to automate this process has helped to make it a very simple and successful way to reach your goals. You can easily set up to have 10% of your earnings go towards your goals. Retirement saving, buy a house, new car fund, children’s education etc are all good examples.

The reason why these automated programs are successful is that once it is running you learn to live without that money and it starts to really add up!

For example if you make $55,000 a year and you put 5% towards retirement every year (ignore raises and inflation): in 35 years at 6% return you will have saved $326,500! @ 8% = $525,680!!!!  Would you really miss 5% of pre-tax income!

TIP: If you are going through a period of financial difficulty (laid off, medical leave, etc) you may want to stop any and all savings programs until your income comes back. I would rather you avoid accumulating debt at 7,10,12,18,26% while saving and earning 2,4,5,8%. The math will never make sense.

TIP: If you currently have a fair bit of debt and little savings you need to get aggressive and get rid of the debt! Once you have paid it down then get started on your savings. Read this article on how to effectively pay down debt.

Watch for my book “One Day A Month To Financial Success” due out October 2011!

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