Some people spend more than their income, generating debt. This is obviously a poor formula if your goal is to accumulate money. If you are spending more than you are earning, you will begin to accumulate debt. Although some would say the amount of debt you have is the measure of your wealth.
An example could be the mortgage on the home that you owe, while at the same time your home may continue to appreciate in value beyond what you owe. In this manner, assuming your home continues to appreciate in value; your assets will exceed your liabilities. This is an acceptable form of short-term debt. For most however if your debt continues to accumulate, your fortunes are trending in the wrong direction.
If you utilize your income to pay your bills, treating yourself, splurging, and spending more than your actual income, you will find it difficult to have anything left over to allocate money to save. Try as you may, most people as a result, are unable to do so in that model.
An experience I once had showed me how to turn that formula around in a surprising way, allowing me to quickly begin to accumulate savings. This concept is called Tithing.
By definition, to tithe is to make a contribution equal to one-tenth of your income. This is a concept that usually refers to a church or religious institution. To tithe comes from the Old English word teogotha, meaning a “tenth.” To tithe is to dedicate one-tenth of your personal income, either as a mandatory contribution, a voluntary donation, or as a levy.
The secret utilizing this model, turning debt into asset is both simple and effective… Pay yourself first. Whatever income you receive, by any means, including electronic debits, requires that you slice off 10% (a tenth) and transfer that to a savings vessel of some sort.
In days of old, that might have been a coffee can or under a mattress. In my case, it was the top drawer of my dresser. Were I to utilize this model today, I would literally put that money in the bank. The reason being, it was a little too accessible for squandering eventually, lying there fat and sassy in the dresser drawer.
Paying yourself first will allow you to accumulate a surprising amount of money quickly. I guarantee it, whatever amount of income you presently receive, even if you are on the street begging others for spare change. It’s all about paying yourself first. If you do so, you simply cannot lose.
I would like to also offer a couple of suggestions should you have a future working for a company or organization that offers benefits and incentives to retain you as an employee. Match any money your company is willing to contribute to you. This is an investment in your future.
Put money into an Individual Retirement Account, or a 401K if you are self-employed or own your own business, exempting this income by deferring taxes until withdrawal while accumulating untaxed compounded interest.
Get in the habit of doing this every year during your working years. You have only so many working years to do so! You are building a retirement ‘Nest Egg’. And, you will love your future self for doing so. I promise.