Financial Zip

I have been reading a couple of books lately that have really cemented some very important financial principles in my life and also for people I teach. It came from David Bach’s Start Late, Finish Rich and the Richest Man In Babylon. Two excellent books that I highly recommend.

Anyway, these are two very simple principles that everyone knows but still we just don’t do.

1. The less we spend the more we earn.

Think about that for just a second. If you spend less you keep more. The more you keep the more you can use for an IRA or a start up business or something that can benefit you down the line.

Here is the basic scenario that occurs you get a raise you spend more. It is as simple as that. That is why most people who simply want income and get it, still live pay check to pay check.

So here is a strategy I would suggest that any body who has extra income coming in do especially if it is a raise. If Bob is making $70,000 a year, learn to live on 10%-15% of your income. Bob would then live on $63,000. The extra $7000 can be put to good use by putting it into an IRA or some sort of interest bearing investment.

So here is the benefit to living on a reduced income, and this is where a lot of people get in trouble, that if you lose your job, or your spouse quit there part-time job or your pay at work gets reduced you are still going to be able to meet your obligations. If you do it the other way around and one of those events happens, uh-oh now your putting stuff on credit cards and there goes that hard earned money. Which leads me to my next point?

2. Keep what your earn; and make it work for you.

These 2 principles are all you need to amass any type of wealth. I am a huge Warren Buffet admirer and wouldn’t mind even having a fraction of his fortune, but how he got that fortune was he simply followed rule #2.

Any money that Warren earned he kept. One of his first jobs when he was a young boy was he had a paper route. He would earn the money from the paper route and he found that he had saved up enough money to buy a number of pinball machines he rented out to malt shop’s and other establishments. He began to make very good money doing that.

The point is the money he took he invested into something else that gave him more. I like how the author in Richest Man In Babylon put it, “If you would become wealthy, then what you save must earn, and its children must earn, that all may help to give to you the abundance you crave.”

Those that use these 2 simple rules can acquire a pretty good fortune. There are plenty of people out there that make $50,000 to $60,000 a year have put together small fortunes. While those that make $500,000 have nothing. Follow the rules amass a fortune.