Lesson 4: How to start investing? Pay yourself first!
Now we come to the first crucial topic in our discussion. A lot of people want to know how they can start investing while they are still having problems paying back their debt every month. " I do not even have an extra one cent to spare after paying back my mortage, credit cards, insurance etc, so how possibly for me to have money to start my first investment!"
Therefore, I think the first problem a lot of people are facing right now is they are actually work hard for the bank and not themselves. They have a lot of downpayment to make every month and eventually they become slaves to their loans. Don't you think it is funny for you pay the bank first when you get your salary every month instead of paying yourself first. You are the one who works hard to get the money but the funny part is you are paying the bank first when you are being paid every month.Some may argue that, they have no choice because they have to pay their loans or else they would have to pay extra next month due to late payment. If you can't spare 10% every month for any investment, there must be something wrong with your money management every month. There are two possibilities, either you are living on liabilities ( you use credits to buy almost everything and you are now paying back your bad debts every month) or you are just spending too much ( the only way you can spare 10% is to cut down your expenditure).
If you are case number one, it is a bit difficult but I think the first step to do from today is to cancel your extra credit cards. A lot of people ask me, actually what is the appropriate number of credit card a person needs, I said it is "ZERO", get me right, not "ONE", not "TWO", it is "ZERO", you shouldn't live on liabilities. I would talk to you about what liabilities you may take in next lesson.Credit card is the monster that seduces you to spend extra money, some time even more than you actually can afford. No matter what, you should put aside 10% of your salary this month. If you are case number two,meaning that you just spend too much, the best way for you to avoid spending too much is pay with cash every time you buy some thing, so you would notice now that a lot of your problems will be solved if you try to avoid using your credit cards!
" What to do with the 10% that I save every month?" I think the first pricinple to apply in every money management is protection first! Therefore you should put aside some money in your emergency fund so that you still can survive for at least 3 months if you suddenly lose your job tomorrow.Save your 10% of money in a separate account in your bank and never touch it until it is really emergency.Emergency does not mean that you have to buy presents for your children this coming Christmas or you want to renovate your house before New Year. What I mean emergency is really emergency, you fall sick next month, you need money to repair your house after fire etc.
If you have saving ( emergency fund) enough to support you and your liabilities for at least 3 months,then welcome to te world of investment, we are going to talk every thing about liabilities and assets in upcoming lesson soon.