Thursday, 27th November 2008

The practical way to riches, part 5

Written by George Traganidas Topics: Habits, Personal Finance

By now you must have a clear idea of the practical way to riches. To summarise what we said before, you need to follow these practical steps. You must put aside money every month that you will use for investments. You must save money every month that will cover you in case of emergency. You must control your expenses and spend less than what you earn. Finally, you must seek advice from competent people on a way to invest your money.

The above steps must become your habits. Every month you must do them like you brush your teeth every morning. Where most people fail is that they follow this advice for a while and then they relax and skip a few months. In the end, they just do it whenever they remember or when they have money left over. This is a disaster and it will make you to fail. This step will help you to resist the temptation of going down that path. It is a very critical step.

Habit 5 – Automation

The money that you put aside for investments and the money that you save must be taken out of the money that you plan to spend that month. The best time to do this is at the beginning of the month. Put the money away and what is left in your account is what you are allowed to spend this month. If you try to do this at the end of the month you will not have any money left. Therefore, do this at the start of the month. This is critical.

Of course we are all human beings and we might forget to do this sometimes. In order to avoid this you must set up an automated process. At the beginning of the month the money will be moved from your spending account to the place where you store your investment and saving money. This will happen without you having to remember it every time. This will also help you to resist the temptation to reduce the amounts for a non-valid reason (e.g. need to buy new clothes this month and I need the money).

One important thing to remember with the automated process is to remember to update it when your financial circumstances change. If you remember from the earlier posts the money that we put aside for investments and savings are a percentage of our monthly income. Therefore, we must remember to update the automatic process if our income changes. This is crucial because the more you will earn the more you will invest and save.

Next week I will tell you the sixth habit.

Follow the practical way,
George

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