Remedy to living from paycheck to paycheck

So often I hear people complaining that they are living from paycheck to paycheck. Starting to build a safety nest of savings gives you more freedom with your life. You can look for a better job, start to build a business or take a well-deserved break to be with your baby.

Saving has never been a problem for me. In my first job I lived with my parents and saved 50% of my paycheck. I did not budget, but once my credit card hit the 50% mark, I stopped spending.

However, one book that really changed my outlook towards wealth and money was “The Richest Man of Babylon”. The book is super short but has all that you would need to know about saving, investing wisely and getting rid of debt.

Here are some of the concepts outlined in the book and how you can apply it to your life.

1. Save 10% of your income. It is a good idea to split your savings into short term and long term savings. Long-term savings would typically be 401K or IRA (say you save 5% towards that). The other 5% could go towards any short term goals you might have such as downpayment for a house, wedding or a trip that you have always wanted. Having a short term goal makes saving exciting rather than tiresome and a chore. If 10% seems like a lot, start with saving 1% and increase it by 1% every month. Saving this way attracts more wealth into your life.

2. You still should spend the rest of your income. Don’t over- save or save beyond 20%. After accounting for fixed monthly expenses, you should

consider spending on fun activities and charity. At some point, you should enjoy what you have earned.

Think a bit more about why you are actually earning money. You definitely want to survive and want money for eating, shelter, and clothes. However, there is something which you might feel money is worth spending on. For some it might be buying purses, for others, it might be traveling. Indulge in such pleasures from time to time to make earning money more exciting.

3. Invest intelligently the saved money so it will generate returns with less risk. Invest with a person who knows and has experience with what he is doing. For example, you do not want to give money to a brick maker to buy gold.All he knows about is bricks and nothing about gold.

I personally like to educate myself on any kind of financial instrument I invest in, rather than trusting someone else with my money. All my securities in my 401K and my personal share account were intensively researched by me. I also realized it was not a wise idea to invest in real estate without educating myself about it after considering all the costs that came up buying and maintaining a home.

4.Reinvest your returns so that they might yield more returns. This is the whole idea behind 401K. Your returns can be reinvested so they yield more returns.

5. Create a debt repayment program. Ramit Sethi of “ I will teach you to be rich” mentioned a website called What’sTheCost.com that calculates how fast you can repay any debt. I was amazed if I paid $1500 each month, then I can repay my entire mortgage in 10 years. That was pretty amazing to know. He mentions several strategies in this video.

I am a big fan of Jaime Masters from Eventual Millionaire and have listened to several millionaire interviews. Her story of how she got out of debt and

pursued her passion is inspiring and it catapulted me to start my blog and my business

6. The last section describes how to select who you lend money to. This section does not directly apply unless you are someone who is looking to lend your money. If you are lending to someone starting their own business, evaluate their knowledge of the business before lending them money. Evaluate the repayment capability with their possessions and their knowledge/ education.

The book is a definite read for anyone looking to get a strong hold on their finances. However, my post summarizes the most important concepts covered in the book.

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