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Thursday, September 10, 2009

Rule 1: Start Saving


A bird in hand is worth two in the bush.


I'm sure that since you're reading this blog, that you must be in some way searching for ways, ideas and answers to attaining your financial freedom. Believe me when I say I can relate to what you're going through.

So how should you begin in achieving you financial freedom?

The number one rule is to save. In Robert Kiyosaki's book, Rich Dad, Poor Dad, Robert advocates the wisdom of paying yourself first. This is imperative if you ever want to become financially free! As a famous line goes, "If you want to get through your days, save 10% of your pay every month. If you want to be rich, save 20%."

Few things to note:
1) The 10% or 20% that you save is of your total gross income. Not net.
2) Saving 20% and leaving it in the bank will not make you rich unless you're earning a 5 or more figure sum a month.

So why save 20% a month if this won't make you rich?
The answer: The money saved will reach a prominent sum, which will enable you to invest to generate higher returns,

Aside from those rich people who either inherited or earned their wealth by their entertainment talents, most rich people started by being great savers. The most famous example is Mr. Warren Buffett, the second richest man in the world.

To use a rather conservative example of how savings could increase your wealth, imagine if you were earning a gross income of $1,800 and set aside 20% ($360) every month into your savings account, that'd be $4,320 a year excluding any bonuses or interest gained from the bank rates. If you factor in these extras, chances're this would total to about $5,000 a year.

While this figure sure seems little, it sure beats having $0 in the bank, doesn't it?

Now if you were to invest this $5,000 into an investment vehicle that yields a pretty conservative compound interest rate of 10% p.a. for 10 years, you'd be having a total of $12,968.71. Isn't that amazing? For one year's worth of saving, you could turn $5,000 into $12,968.71 simply by choosing the right investment vehicle and waiting. And think about this. What if you saved $5,000 every year and invested it at the same compound interest rate of 10%? Can you imagine getting back $12,968.71 every single year from the 10th year onwards? That's an extra $1,080 for your monthly expenses! Fantastic!

Here's another tip in increasing your savings faster. Put your money into high-yield banks. These are banks in your country with high interest rates for example ING Direct. Take note however that while it is possible to put your money into a foreign high yield bank, you also run the risk of currency fluctuations. That said, these banks will help your savings grow faster and enable you to invest earlier when opportunity knocks.

So don't delay. Start saving today!

Cheers,
~K

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