If you won a million dollars today, would you spend it all immediately buying loads of stuff so that by this time tomorrow, it’d be all gone?
I’d bet you wouldn’t, but that’s what a lot of people are doing; not with the money they win, but the money they make.
I don’t often write about wealth as I’m not that wealthy in financial terms, but lately it’s surprised me how often my friends do the exact opposite of what nearly every financial planning book advises; they spend first, and save later.
First Rule Of Creating Wealth
There’s nothing truer about being rich than what a friend told me once; you’re only as rich as you spend. If you make a million but spend a million, you’ve still made nothing (If you make a million but spend two, you’re in trouble!).
That’s why the first rule of creating wealth made so much sense to me when I first heard it. Instead of paying for your bills, clothes, outings, widgets and gadgets first, you pay yourself first.
Which is the opposite of what most people do; but consider that a lot of people are hardly cash-rich and are in credit card debt, maybe it’s a good idea not to join them!
How Much Should You Save?
Most every book I’ve read advises that you start with 10% of what you make. Whatever you make, the moment you get it, you immediately pay yourself first with 10%; put it away in the bank and it’s yours.
If you can’t make 10%, start with a smaller amount first, but the sooner you start, the more you’ll begin to have.
I can personally guarantee that after you watch that amount in your bank account accumulate, you’ll won’t stop at just 10%. After a while, saving your money can become fun, even addictive!
How To Create Financial Wealth
While I’m not an expert on financial matters, here are a few bloggers who are:
Adam Khoo’s Philosophies & Investing Insights
And I recommend my friend Adam Khoo’s Secrets of Self-Made Millionaires course; he made his first million by the tender age of 27 so I guess he knows what he’s talking about 
November 17th, 2006 at 3:13 pm
Great post! I hope this article helps more people realize they need to save their money and grow their wealth. It can be hard to save at first, but once you start saving it becomes a habit.
I personally save a lot of money, more than 10%. I pay myself by investing my money in the stock market and other assets. I’m putting part of my savings aside for my first house. I don’t really spend a lot on entertainment, clothes, etc, and my bills are pretty low. This allows me to put more money aside to grow my wealth.
I also have created a plan for growing my wealth and investing. For me, my investing plan helps me stay focused on my long term goals. I’d like to have a couple houses, a farm, a lot of money in the bank, money in investments, etc. I want to be financially secure and not have to worry about paying the bills.
My plan includes my short term and long term goals. It also has my general and “flexible” monthly budget. Creating a budget helps me put money aside for paying myself and building my wealth – I know how much I want to save, and how much I can spend. It is flexible in that there are always unforseen circumstances. One month I may save 30%. The next month may be 15%. I do try to reduce my costs and expenses so that I can save as much as possible.
If my memory serves me correctly, Robert Kiyosake also says you must pay yourself first in his “Rich Dad, Poor Dad” book. I think this is a great book for helping beginners get in to the saving / wealth / investing mindset.
I’m not familiar with Adam Khoo. Going to check his site out now.
November 17th, 2006 at 3:32 pm
there’s that perspective where you should ‘live rich’ to get rich.
when you live as if you are rich, your whole body is geared towards being rich, and eventually you will be.
so they say.
i think wealth creation/negation is really about a series of decisions, not just the major ones.
that extra cuppa, the indulgence, the friend’s birthday. all too often we never buffer for it, and ultimately (pun or not) pay for it.
November 18th, 2006 at 5:35 am
What is saving? well, maybe the ability to inhibit the impulse to buy the million random things we are offered every day, and to be able to avoid the misperception that “rich lives” require “expensive stuff to impress”. We need to secure our identities.
Main tip to save: switch off that TV, talk to a friend, go dancing, read a book, volunteer, cook and share great food (no, you don’t need that uber-gourmet atomic kitchen). Lead a rich life.
As a shortcut, the 10% rule will probably help.
November 21st, 2006 at 8:35 am
Great post! As someone who has had a lot of trouble paying myself first for years, this was the biggest shift in my relationship with money.
Even when there are lots of bills to be paid, when an invoice comes in and I deposit the money, I promise myself to wait at least 24 hours before dividing it up – first to my savings, then to my obligations. That way, even if it all goes, it sat in my possession for 24 hours.
Sounds small but it has caused a major shift in how I understand the natural flow in and out of money as energy.
November 22nd, 2006 at 8:57 pm
Wow, I’m feeling like there’s as much goodies in the comments in this post as the post itself
November 24th, 2006 at 1:56 pm
Lead a rich life! I like this Alvaro…
That’s the kind of abundance I’m looking and moving towards too … riches in all sense!
November 24th, 2006 at 5:49 pm
There is a simple way to pay yourself first. Set up an electronic deduction scheme which automatically deducts part of your monthly salary every month and sweeps it into an investment account.
Most online financial service providers offer this kind of facility.
My personal example here. My payday is the 15th of each month, and on the 17th, some of the pay is automatically deducted for savings / investment.
November 24th, 2006 at 9:37 pm
Great post. I just started reading David Bach’s “Start Late, Finish Rich” and he outlines how paying yourself first into an IRA or 401K is a great deal because of the tax savings, it only costs like $380 in take home pay to invest $520. It’s great that you are pointing out these ideas about saving 10%, it’s amazing how few people save even 1%. Keep reminding everyone!
November 25th, 2006 at 1:11 am
Hi Jerry,
I’ve been listening to David Bach’s audio program and I love the way he speaks! His energy and enthusiasm carry over into the program and his ideas are sure exciting. I’ve only listened halfway but it’s inspired me to go back and look into my accounts with a much keener eye.
Hi Godot,
I like your idea, even though I doubt I could match the amount
I’ve been looking into investments for my security bucket, and the only ones I know so far are index funds.
Unfortunately, most index funds seem to need a big buy-in amount. I’ve been recommended EFTs but then someone mentioned the admin fees involved would negate their worth as a long-term dollar-cost averaging type of investment…
Honestly, my head is swimming with all the math! But it’s an area I know I need to master.
November 25th, 2006 at 11:38 am
Hi Alvin
In Singapore, the initial minimum “buy-in” amount for most funds is $1,000. However, for subsequent investments into the same fund, the minimum sum is often as low as $100.
In other words, after you make an initial investment of $1,000, your subsequent monthly investments (which can be automatically made by deducting from your salary) can be as low as $100.
November 26th, 2006 at 10:26 pm
How much should we save??
In fact most Singaporeans do not have sufficient savings should emergency event happens.
If a working adult in his 30s, compare the amount of money he has in his bank vs his CPF a/c, very likely he will find the amount in CPF is bigger than his bank account.
If you would like to have as much $$ as the CPF a/c, start saving. 10% is a good start. Then progress to other types of savings or investment instrument that gives better rate of return than the normal bank saving a/c.
Pai sei.. Job hazard.. can’t help but would like to share some ideas. E-mail me at tracey@traceytang.com for more ideas sharing!
Thank you!
November 27th, 2006 at 5:40 am
Hi Kloudiia,
Glad you enjoy it. One needs to develop strong roots in his or personal fertile grounds to sustain a rich life that does not surrender to artificial constructs such as thinking in dollars for what one “is worth”. What a joke, to say someone is worth $xyz.
Are we happy? are we adding to our own lives, and to the lives of other people? then, we are simply worth existing.
November 27th, 2006 at 11:48 pm
No worries, Tracy, what you say adds even more value to this conversation
Alvaro, you bring up very valuable keys, I feel it wrong to equate someone’s worth to their net worth too. Very good points to think about.
June 4th, 2007 at 3:25 pm
I always pay myself first. How? I have my paycheck deposited to my savings account earning around 5%. From my savings account, I would transfer to my checking account whatever I need to pay bills with. Whatever’s left stays in the savings account. Does anyone have a better method? For example, a tax free high yield account?
December 15th, 2007 at 7:17 pm
very interesting, but I don’t agree with you
Idetrorce
July 20th, 2008 at 6:43 pm
Hello. I think you are eactly thinking like Sukrat. I really loved the post.
February 25th, 2009 at 5:32 am
The concept of “Pay Yourself First” is so huge! It is a dramatic shift in thinking that starts you on the path of creating personal wealth.
When I learned this concept, I stopped giving ALL of my paycheck to the landlord, the shops and the restaurants. When you pay yourself first (take 10% of you hard earned money and save it) you become the priority! Those other people cannot touch this money! It is now yours! It is amazing how fast it adds up as time goes on.
February 25th, 2009 at 5:49 am
Another great trick is to save your change. Like “Pay Yourself First”, this is mind trick that makes a percentage of your money off limits to other people.
Try only buying things with 20 dollar bills. Once a 20 is broken, put the change in the bank. You mind will quickly learn that only 20s can be spent. You will still spend all the 20s, but you will have something left over.
February 2nd, 2010 at 12:37 am
The power of love start from love yourself 1st!!