Wealth Pillar One: Pay yourself first

How does one best prepare and manage during a time of financial crisis? There are several actions and habits which can be implemented, all of which will begin to make lifelong changes to one's financial situation. I will be calling these the 'Pillars of Wealth'. Just like a Pillar holds up a house or another building, these Pillars of Wealth will help hold up your financial household. Now onto the First Pillar of Wealth.

The First Pillar to building wealth is...

Save a portion of all you earn. 

"Boring!" I hear you saying loudly, but you would be amazed at how many people don't actually do it. Usually those who think savings is boring don't have any savings at all.

Savings are important to have both in boom and bust times in the economy. Let's say you start saving $100 a week. While $100 does not sound like a huge amount, at the end of 50 weeks you will have $5,000 in savings. If this savings account has been accumulating interest, their will be a little more (minus inflation and taxes will usually make this extra useless), but let's call assume that you will have $5,000. What is the benefit of having this surplus? There are several, including:

  1. You will have created a safety buffer for income should you end up unemployed for a period.
  2. You can use this amount to reduce debt levels, decreasing your expenses.
  3. You will have increased confidence, allowing you to continue to do your job successfully, leading to a higher chance of promotion.
  4. You will have money to invest when the economic timing is right.
  5. You have shown you can simplify your expenses to less than you earn, which will demonstrate that you have can successfully save and thus undertake the first pillar of wealth creation.

How much should I save?

This is a question that many people ask. Most financial books recommend saving between 10-20% of your income, but the reality is that the more you can save, the more leverage you will be able to create in your financial situation.

Personally, I started my savings with 10% and increase it whenever I can without great personal sacrifice. I would recommend starting with at least 10% of your pre-tax income. If you cannot start with that amount, don't stress! The next wealth pillars will allow you to learn the skills which will provide you with the opportunity to increase the amount you can save. The important thing is to take action in whatever way you can, and begin to build your savings today.

The actions required:

  1. Start saving today. Call you bank and ask them to set up an online savings account and to have a portion of your pre-tax income (preferably 10%+) transferred each week/fortnight to this account.
  2. Commit to your personal success in the current and future economic climates. Getting out of the rut in down times requires life-long habits. Determine to follow these habits from now on!
  3. If you earn any interest, leave it in the account. This will build compound interest (note: you can focus on increasing the amount of interest after you have developed the habit of saving on a regular basis).