Pay Yourself First

I am reading the book The Automatic Millionaire just 1/3 through and I am already pretty impressed with the contents. In this article, I will just summarised the most important method in getting rich: Pay yourself first.

For every dollar you earn, a percentage of it goes to your income tax, a percentage goes to your home installment, your car installment, your insurance, your utilities bills, your mobile phone bills, your daily meals and what have you. What is left, if any, you will try to save. But very often, even if there is anything left, you will spend it on impulse buys.

Pay yourself first basically says that you should save a portion of your earned money into a account first before you do any other things, like paying bills etc.

Maybe you are saying it is impossible to save. Let me do a breakdown for you, or rather let you see it in a different light. Say for example you earn $2500/mth. If you divide it out for the full 30 days, it means you earn $83.33/day. Do you think saving $5 out of the $83.33 earned is a lot? That is only 6%. See it another way, $83.33/day is equivalent to earning $9.25/hour(assuming you work 9 hours a day). $5 thus is just slightly more than half an hour of work for you.

Let's see what is the effect of saving this $5/day. In one week, you would saved $35 and in a month, $150. If this money is put in an investment which can give you 10% per annum return, you would have $1,885 after your first year, $30,727 in 10 years and $339,073 in 30 years.

From $5 to >$300k, do you see the effect of just $5?

Be sure to look for my review of this marvellous book in my reading tots blog.
http://myreadingtots.blogspot.com/2007/06/automatic-millionaire.html