One of the most important things you can do for building wealth is save first.
My inner nerd is on show with this one… but one of my favourite quotes from Warren Buffet is this:
“Do not save what is left after spending but spend what is left after saving”
Buffet also thinks that one of the wisest financial things you can do, is to have a decent proportion of your assets in cash, especially if you are an entrepreneur or own your own business.
This prevents you having to sell assets at the worst possible time – that being the time when everyone else is.
Now these two concepts are obviously pretty much intertwined, so how do you start saving, so you can get yourself into the position where a decent amount of your assets are in cash?
The best way to start building wealth is to have a direct debit set up to take money from the account your salary or earnings are paid into on the day you are paid.
This money should be moved into a savings account that is difficult to access, preferably with a higher interest rate than what you earn on your day-to-day transaction account.
How much you can afford to save is really a personal question and will be influenced by how much of your take home pay is spent on essentials like your rent or mortgage, groceries and utilities.
But if your ‘essentials’ are less than 50 per cent of your take home pay, I’d like to see you try to save at least 10 per cent of your pay each month.
If your essentials are costing you more than 50 per cent, then you may have to take a good hard look at how you can reduce your spending on those areas before you start saving much.
This could mean working out what can be sacrificed from your grocery bill, or finding a lower cost mortgage and saving the difference.
You may have to start small, but if you start saving first not last, you’ll find it is a great way to start building long term wealth.