If you only learn one financial lesson from me, let it be this: You can and should keep a portion of every dollar you earn for yourself. Seems fair, right? You earned it, you should keep it.
Some of you will be thinking, isn’t everything I earn mine to keep? Unfortunately not. Unless you’re very young and your parents are paying for everything in your life, the answer is no. You’ll have housing to pay for, gas for your car, electric and water bills, phone bill, etc. etc. On and on it goes. Life is not free, you have expenses, they need to be paid, and you pay for them out of your income. So no, you cannot keep everything you earn.
Money comes in when you work, and money goes out when you have needs. The problem is that for a lot of people, maybe even most people, every dollar that comes in also goes out, and for some of them, more dollars go out than come in. That’s how you end up in debt.
You need to value paying yourself as much as you value paying for your groceries, maybe even more than you value paying for your groceries. And you should pay yourself first, as soon as you get paid. Take whatever percentage you decide is yours and move it into a savings account. You can figure out what to do with it later, but for right now, I want you developing the habit of saving money by paying yourself first.
I used to think I would save everything that was left at the end of the month. The problem was that there was never anything left. Inevitably something would come up, and I would spend all my money. Maybe you do this too. Paying yourself first eliminates that problem, because the money isn’t there to spend anymore. You’ve already saved it.
The Richest Man in Babylon (one of the books on my Reading List) says “1/10th of all I earn is mine to keep.” Some people will say you should save 15% or 20% of your income. I’m not sure the percentage matters too much, and there’s no hard and fast rule about what’s right, but I would make sure you save at least 10%. Give it a few years and you’ll be so glad you did.
Having this mentality, and developing this habit, is the most certain way to build wealth. How much will you save?