FACT #1: Money is the leading cause of stress for Americans today (source).
64% of adults report that they feel stressed about money, which ranks higher than stress associated with work, family responsibilities, or health concerns.
FACT #2: Most personal finance advice that you’ll find on the internet is terrible.
And “terrible” is putting it nicely. Most of it flat out sucks.
In fact, I can summarize 95% of the personal finance “advice” found on the internet in one sentence.
Work like a dog, cut back on everything (read: have zero fun), save every penny you can find, and maybe you can start to “live” at age 60+.
FACT #3: I am passionate about helping YOU create a lifestyle of freedom. And it is impossible to feel free when you are constantly weighed down by the stress of managing your money.
Which is why I invited my friend Dillon Carter to put together a post about how you can start to get a hold of your financial life.
Take it away Dillon.
[From The Richest Man in Babylon]
There once were two men; Bansir and Kobbi. These two men lived in ancient Babylon, rumored to be the wealthiest city in history. Bansir was a chariot maker and Kobbi was a musician. One evening Bansir and Kobbi realized how poor they truly were. Each had a talent and the ability to earn more, but money seemed to escape them consistently.
On this evening Bansir recalled the richest man in Babylon, Arkad, whom they grew up with. Bansir and Arkad had the same level of education and began with the same amount of money. Yet, one was the richest man in Babylon while the other struggled deeply.
Bansir went to the home of Arkad and asked why this was the case. Arkad told Bansir what he had done to become the richest man in the city and how any man can do the same. He followed the laws of money strictly and gave Bansir the first rule he must follow. Save no less than one-tenth of which you earn. He instructed Bansir to do so and to come back within a few weeks.
A few weeks had passed and Arkad asked what had happened to Bansir. Bansir responded that he had done as instructed; saving no less than one-tenth of his earnings. Arkad had taught Bansir the first rule of building wealth. Saving a percentage of money no matter what allowed Bansir to “fatten his purse” and build his first taste of wealth.
Read: The Richest Man in Babylon for the full story!
Such a simple rule to follow yet most of us fail miserably to follow it. What would happen if you saved 10%, 15% or even 20% of everything you earned over the course of a year? Would you be a wealthier person? Would you be able to pay off all debts?
The Basics of Living within Your Means
I’ve written a bit about the systems of living a great life where I break down automated systems to ensure life is amazing, but I didn’t go as in-depth as I wanted to in the finance area.
This is a subject many become intimidated by, but not you! You’re out there conquering the world. Using systems to travel the world for next to nothing, building businesses to sustain your desired lifestyle and hacking your way through this crazy world.
We hear this “live within your means” all the time, but never put much real thought into it. Is living within your means actionable advice? What about saving no less than one-tenth (10%)? Could you start saving no less than 10% this week? Of course you could! So start!
By simply saving 10% you are ensuring that you do not spend 100% of what you make.
This, ladies and gentlemen, is how early stages of wealth is built. It’s not by making some amazing stock pick or hitting the lottery. There is a system to building wealth, one that anyone can follow if he so desires.
I remember when I first learned this rule and began to follow it. I had more money than I’ve ever had ($5,000 cash) and at 20 years old that was rich to me. Not only did I have more money, which helped me to build my starting wealth I also still had plenty of money to live a rich life.
I ate the best foods, I bought what I wanted and I traveled. I did all of this freely because the first thing I did when I got money was sent 10% away to a hidden account. Therefore, whatever was left was mine to spend.
Eventually I got wise and realized that I could cut back on things without losing any happiness and save even more money. That’s when I realized the power of investing my money and making it grow. This was the exact moment I realized my passion for finance.
The Passive Strategy That Works
Every dollar you save is a slave. Every dollar has the ability to yield more dollars (their children if you will) and each of their children becomes another slave working on our behalf. Our goal is to quickly amass the most amount of slaves as possible. Money is a tool, keep this in mind!
The best way to make this as painless and thoughtless as possible is to set up some sort of automatic transfer. If you know how much you make every paycheck, figure out what percent you want to save (no less than 10% of course!) and make sure it automatically transfers after your money is deposited into your bank account.
There is something magical with this simple system that many never feel or even understand. You never lift a finger, yet every month you are building wealth…
Check your hidden account every few months and see how powerful and simple this is. Once you see how much you have, you’ll quickly want to invest it for growth.
Or even better, create a system that invests your money automatically. Without you having to lift a finger.
What Happens In 40 Years
Hopefully you understand how simple this is and have already begun setting up your system. I briefly asked you to think about how much money you would have after a year saving 10%-20%, but I want you to think about what 40 years would look like. Every single year you saved no less than 10%, how much would you have? This is without any investment or compound interest!
Let’s assume I save no less than $400 every single month. Let’s look into the future:
1 year: $4,800
5 years: $24,000
10 years: $48,000
20 years: $96,000
30 years: $144,000
40 years: $192,000
I think it’s safe to say you have a high likelihood of living for the next forty years. The future is looking pretty good. You’ve saved no less than 10% and have amassed more money than most have ever seen.
Now, we’ve only looked at the numbers of savings. What if we took this money and invested it?
Another rule Arkad told Bansir. Invest your money so that it may multiply and work for you. If all we do is save our money, it will never work for us.
The wealthy know that your money must work for you constantly. So if we took our savings and put it in to a conservative investment that earns a 7% return on our money, where would we be?
Let’s look at the numbers:
Starting Capital: $4,800
Annual Addition: $4,800
Years to Grow: 40
Interest Rate: 7%
Total Value After: $1,066,083.98
So in 40 years you would be a millionaire… a difference of $874,083.98!
This is not rocket science and you can become wealthy by working understanding simple finances.
– Start by saving no less than 10%, but save more if you can
– Watch the compound interest grow your money as it begins to work for you.
– Automate everything to ensure success!
Dillon Carter is a lifestyle hacker, blogger and future mad scientist. He’s passionate about living his version of an ideal life and will stop at nothing to reaching that goal. He writes about finance, travel and lifestyle on his personal site.
P.S. Next week I’ll be sharing the exact system I use to automate my savings and investments. Make sure to join my Insider’s Mailing List so you don’t miss it.