Saving for your future can be challenging, but if you want basic financial stability or hope to start growing some serious wealth, it's not optional – it's mandatory.
Begin by saving a portion of any income that you receive. Try setting aside 1% or $3 a month and then up your savings rate continually until you are at least over 10%. If you are ambitious get it over 30%. Once you have money aside, systematically allocate it into four strategic categories.
Categorizing Your Personal Finances
- The Vault – this is your wealth account. Money gets deposited into this account and it never leaves, like a one-way valve. The Vault is invested and the principal is never spent. It will grow into the largest part of your net worth, generating nearly all of your investment income. If you don't start creating wealth penny-by-penny, you'll never have any.
- Soft Savings – a delayed spending account. This money is marked for things that you want to buy, but can't afford to purchase with normal pocket money such as a house, car, vacation or college fund for kids. This also includes maintenance to your home, like a roof, new appliances or new siding, etc.
- Pay Debt Balances – making extra principal payments on your credit cards, car loans, and your mortgage. By chipping away at these expenses you will eventually eliminate them all and then have more money available for other categories.
- Financial Education – to purchase books, magazines, newsletters, seminars, software and investment memberships. Also, hire professional financial advisors, tax accountants, estate attorneys, etc. Avoid free advice from a buddy, your cousin, or a friend's neighbor – buy the best, most expensive professional advice you can afford.
How much do you allocate to each? It's up to you. But by allocating your savings into these four categories you are addressing the four most important elements of financial management.