Pay Yourself First | The Millionaire's Tips |

The major difference between the rich and the poor is the mindset. The rich haven't become rich by luck or by fluke. They have worked their way towards it. There is no substitute for work, and here I will no argue on hard works and smart work. What really matters is that you work and grab all opportunities that come your way. 

But what after you have done so? You work hard and you earn good but you still aren't a millionaire. You know the power of compounding and you know the early you start the better it will be. But most of your earnings are spent by the end of the month and you can barely save a good amount to give you enough principle to compound. You expected a raise this year and you got it too, but by then you realized your expenses have risen too. Your vehicle needs to be replaced or the house that you are living in seems small and there isn't enough space to keep your stuff and you need to buy an extra cupboard.

Let me tell you about an interesting character from a fantasy world. Potterworld fans you are going to love this. I was watching the "Fantastic Beasts and where to find them" and I came across a very interesting beast - Occamies. The specialty of this beast is that it can change its size to fit in the available space. So if you give them a large room they will expand their size and fill the whole room and you can also close them in a teapot.

This is exactly how expenses work. If you have one lac at your disposal somehow you will have your expenses really close to this figure. You will feel that you are just making the ends meet and all the expenses that you are making are just the necessary ones. You will promise yourself that as soon as you get a raise you will put the entire amount of your raise into your savings and invest them in a good place. But as soon as you got that raise, you found you have a few upcoming unforeseen expenses and thus you end up using the extra 10000 (meant for saving) for those expenses.

The expenses are exactly like the Occamies. They will expand as much as you provide them space to. So keep giving them a larger room and they would fill it all. To bring them inside the teapot you have to lure them in ( meaning you have to work a little on yourself.)

You need to pay yourself before you pay others. But, what does paying yourself mean. You may easily argue that all the money you have is already yours but I will tell you one clear fact. NO, IT IS NOT YOURS. This is the money that you are going to pay out for your various expenses. So what is left for you? The Occamy expanded and all money is gone. 

Paying yourself means keeping aside a certain amount at the beginning of the month in a separate account which cannot be spent for any expenses. Do not wait until the end of the month to save the leftover. Are you working so hard to feed yourself on leftovers? No. Respect yourself and pay yourself before you pay anyone else. 

No matter how much or how little you earn, at the beginning of the month put away 10% of your income. Give your expenses the teapot to fit in. Initially, for a month or two you may have trouble making the ends meet but slowly your expenses would adjust themselves to the smaller space and you would have a better principle to compound on.

Gradually you can increase the percentage of savings from 10% to 12% and you will find yourself saving up to 20% of your income soon.

If you cannot start with putting aside 10% at once and feel it will be too much you can start with 5 % and gradually increase it to 10% over the period of six months. What is important is that you keep that amount aside for yourself and build this habit of saving. 

Teach your kids the same. Tell them to keep an amount aside from their allowances and teach them to build capital for themselves. Financial education is something that our generation has missed in school and we should try our best to impart this knowledge that we have come across, to our next generation.

Where to invest them to get the right returns is another matter at hand but to have the capital to start with is what matters the most. Whether we want to start a business or invest in a good opportunity the first complaint we have is that we do not have enough capital. So build your capital. It is clearly in your hand to fit the occamy in a smaller place and take your first step away from 'not enough.

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Divya