Richest man in babylon budget breakdown9/24/2023 The book rightly points out that most people confuse necessary expenses with discretionary ones. If you are like Arkad’s students in the parable, you are probably thinking that there is no way you can pay yourself first and save a portion of your income because your income doesn’t even cover your expenses now! Thou mayest have coins to pay for thy necessities, to pay for thy enjoymentsĪnd to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings. This, then, is the second cure for a lean purse. You are now paying yourself first and living off the rest, rather than hoping you have money left at the end of the month to save for the future. But what if the next time you got a raise, you decided to divert the entire difference into a savings account? Your lifestyle wouldn’t be impacted, and you wouldn’t notice the difference, but your savings and liquid net worth would begin to grow. Your spending increased to absorb the difference. Where did the money go? You probably have no idea. Think about the last time you got a raise. While it may be a difficult shift at first, once you get used to it, it won’t even feel like it impacts your lifestyle. Instead of savingwhat is leftover, you are spending what is leftover. You are making a conscious decision to “pay yourself first” – to save a certain percentage of your income before you budget for your monthly expenses. The second equation is a subtle but significant mindset shift. Unless you have an unusual amount of willpower, it is difficult to spend less than you earn if you don’t specifically prioritize savings as a line item in your budget. You are following the path of the average American – almost 80% live paycheck to paycheck. If you follow the first equation, you are saving whatever is left over after you pay your expenses. However, the psychology behind them are vastly different. I will spare you the mathematical proof, but those two statements are equal. So what does it mean to pay yourself first? There are two ways to look at savings, and mathematically they are identical. This may be the most basic maxim in all of personal finance, but if you don’t follow it, you will never escape the paycheck to paycheck cycle. The first lesson given by the wealthy Arkad to his students was to pay yourself first. This, my students, was the first cure I did discover for my lean purse: ForĮach ten coins I put in, to spend but nine.
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