There is no easy way, at least not legal way, to get rich quick and easy. Money usually comes associated with a lot of hard work and discipline. So, if I work a lot and make a lot of money, will I get rich quick? Not so fast. Even when making a lot of money, if you spend more than what you earn, the stack won’t grow. We put together two basic principles to help you stay out of financial trouble and make your stack grow.
The first principle of a healthy financial life is to spend less than what you earn. It may look simple or obvious, but if you ever paid for a banking fee (especially overdraft), you are doing it wrong. There are things you need to buy, there are things you want to buy.
You have to pay your rent and utilities. You need them. This type of expense is hard to change, so consider them sacred and pay them before anything else. Pay ahead of time if your paycheck is out of synch with these main bills. The money needs to get out of your sight as soon as possible. Your rent is usually your biggest expense, and as a rule of thumb, if it is more than 30% of your income, you should probably be looking for a roommate, and don’t even think about a bigger place.
There are things that you don’t really need, but you want. You don’t really need to drink that beer or eat that cupcake. But you believe that would make you happier and you decide to do so. Nothing wrong with that, but you need to be aware of your choice. We are making this type of choices all the time, but if you can really see how they affect your daily finances, you would make more educated choices. After your big and recurrent expenses, like rent, utilities, car lease, the balance that you actually have a choice upon is really smaller than we usually think.
The second principle is: the easiest way to save is to save recurrently. You should make it a habit. Small amounts every week or every paycheck. Take the money out of your sight as soon as the money gets in.But how much should I put aside? One hundred dollars. Actually, we wish the answer was so simple and direct, but it is not. Each person will have a different number. It depends on how much you earn, how predictable your income and expenses are, as well as how strong you will be creating a new habit. If you don’t have a crystal ball to tell this number, just don’t make it too much.
Try to save a given amount ($100 would work as a starting point). It needs to be feasible. Start with a number that you really believe you can set aside every paycheck and forget about it. After a couple of months, try to increase it a little, but remember that you will need go with that “discount” every month or paycheck. It is better to start small and increase later than having too much set aside in the beginning just to tap into the “savings” for daily expenses. Once you learn how easy it can be to just transfer an amount from the savings to the regular expense account, that account lost its “set aside aura”.