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Change your habits and Pay yourself first

Fulya Simavi

Fulya Simavi

When you decide to change your habits it will be difficult at first because it is hard to change the habits of spending that we have had for so long. Along with getting prosperous attitudes about your financial affairs, it is good to do whatever tangible or intangible thing you can to get the feeling that you are cleaning up indebtedness.

Be Frugal-If you have not already, read the book “Millionaire Next Door.” This really opened my eyes to the world of the rich. People become rich through saving and investing wisely, not by earning a great deal of money.

Pay yourself first

In 1926, George Clason wrote a book called The Richest Man in Babylon- one of the great success books of all time. In my opinion, the most powerful idea that the book presents is that you should live on 90% of your income. That is, for every £100 pound that you take home, automatically £10 pound should go into savings. If you can save more, great, but 10% is the minimum. This is the only way to stop living from pay check to pay check. The situation is slightly different if you are in debt. The book then advises that you live on 70% of your income. 20% would go to pay down the debt, and 10% would still go to savings. Once the debt is gone, you can go back to living on 90%.

Look into Compound interest if you haven't already

Albert Einstein once called compound interest “the greatest mathematical discovery of all time”.The concept is this. When you invest money you earn interest on your capital. The next year you earn interest on both your original capital and the interest from the first year. In the third year you earn interest on your capital and the first two years’ interest.

The concept of earning interest on your interest is the miracle of compounding. Once your debt is under control, you can start to use Compound Interest in your Investing strategy.

The earlier you start investing, the more time you leave for the miracle of compound interest to take effect.Basically you are getting “interest on the interest” earned so the net change increases every year provided you make no withdrawal.

Compound Interest works on 2 variables – time and rate – the longer your money has to grow, the faster it will grow, and the greater the interest rate your money is getting then the greater will be your rewards. It’s very much like a snowball effect. As your capital rolls down the hill it becomes bigger and bigger.

Even if you start with a small snowball, given enough time, you can end up with an extremely large snowball indeed.

“Many of today’s youth have credit cards before they leave high school, yet they have never had a course in money or how to invest it, let alone understand how compound interest works on credit cards.” Robert Kiyosaki

 

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