An important principle every ambitious person should be following is: Ordinary people work for money, rich people have money work for them.
Of course, you have to cover all of your monthly expenses, but what separates the normal from the rich is in the way any excess is used. Those people who want to be successful won’t be wasting their money on things which can’t yield an income later on. Make money work for you and the yield will be so great you will have no problems buying anything you could ever want. All you need is patience and the will to plan for the future.
Eliminating Debt
Debt is the enemy of all savings. It’s sucking the life out of your finances and preventing you from moving forward. Credit card debt, loan debt, or even personal debts with friends and family, these are all just as bad. Let’s take an example provided by Michelle Gaut of Happy Living Magazine on credit card debt:
“If you are already in debt and are paying 17 percent interest on credit cards, it does not make sense to make the minimum payment on your cards while putting money into an account that has a four percent return.”
You are going to have to take a massive step to cover the debt and make money at the same time. Even if you do manage to do it you are still losing so much, so it’s not really a sustainable plan.
Before embarking on any serious savings endeavor, cut off as much debt as humanly possible. Pay off the most volatile debts first, such as payday loans and credit card debt. Don’t be afraid to turn to close friends or family members for an interest-free loan to pay off these debts, it’s going to put you in the green in the long run.
Look at Yourself
Do you think the only way of living is the way we get taught in school? Like 99% of the world’s population you will blindly believe what schools and parents say about living. The Wall Street Protests of 2012 saw protestors young and old complaining about the actions of the rich 1%. Now, the reason these 1% made it there in the first place is because they took those traditional living standards and obliterated them. They carved out their own paths and now they are the definition of success.
But realistically you, the man in the street, aren’t going to discover the next big thing. You are just a person with a normal family looking for a better life. Enhance yourself by looking at the way you live first. If you can’t advance forwards for lack of knowledge or funds look inwards and improve yourself in this area.
Abundance is what you want to gain, but in truth, it’s what most people have already gained. The difference between them and the 1% is they can’t live within their means. If you want to save, you must adapt to the times and live within your means. According to The Lost Decade of the Middle Class, 85% of middle-class adults in the U.S. say it’s now harder to maintain their standard of living than it was a decade ago. The problem here is they are attempting to maintain it. Stress, pain, and frustration are three things these people are going to be dealing with. Yet if they simply shifted downwards they wouldn’t be having these problems. Is their difficult situation partly caused by their own egos? Perhaps, but the reason doesn’t matter, all that matters is the result.
Anybody of any class can cut down to save money, in truth. Ask yourself some of these questions:
• Do I really need to take a second holiday this year?
• Is it necessary to have four TVs in the house?
• Should I really be ordering in dinner at least once a week?
• Can I get a better deal on the food I buy?
You don’t have to be poor to be a good saver. Even if you are already blessed to be a part of the successful 1% you can turn to frugal living to save money. Savings start at home. Begin with your own expenses, before looking into how you can turn your excess into some serious wealth. Do not just get rich, stay rich with proper savings.
The Three Buckets
Now, we are going to take some advice from Anthony Robbins, the creator of the Three Buckets system, which he regularly purports to people during his personal coaching sessions. Imagine yourself 5 years into the future, what did you need to do in your life to get that kind of abundance?
The chances are you had to risk some money to make more money. Yes, those saving tips above are a fantastic way of giving you some money to play with, but there’s no financial freedom there. It’s a tiny stream of income for tiny things, but even the smallest snowflake can cause an avalanche.
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1. Security Bucket
Your first bucket is the security bucket. Only you know exactly how much you can afford to lose. Furthermore, the amount you place into your security bucket is determined by your income and how much you are able to save. For an average income, it’s probably a good idea to have 30% of your disposable income thrown into it. But this figure should be increased as you get older since you have fewer chances to make it big.
This bucket can cover any lost investments, the cost of living for at least six months, retirement funds, and any insurance policies you might have.
2. Growth Bucket
The growth bucket is everything you can use to invest. Look at this as money you don’t need. Any money in your growth bucket is there to be lost and won’t have any impact on your financial situation. The only affect your growth money should be having if it’s lost is a mild disappointment on your part.
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3. Dream Bucket
Think of what you want out of life. Why would you want to embark on taking a look at a book like this in the first place? World travel, freedom of work, or, just an early retirement are but a few reasons. Make your dreams come true with this bucket. You have your security bucket, which is designed to be spent, and your growth bucket, which is designed to be thrown at a favored investment. Your dream bucket is there to be kept.
This is the only bucket you should be looking to hold tightly for yourself. Dream money is the money to place in a high-interest account with the view to spending it at your pleasure. Any successful individual will want to make their dream bucket as large as possible.
Dream and Growth Spread
You may have noticed the lack of figures for the dream and growth bucket. The lack of any percentages for how much you should place in each one has been left out on purpose. It’s not viable to attempt to predict exactly how much you should be placing in each bucket because everybody has different tactics.
Here are just two strategies you could potentially employ for your road to success:
1. Start with Nothing in the Dream Bucket. Place Everything You Have into Your Growth Bucket, Whilst Still Taking into Account Your Security. Any Money Coming out of Your Investments Will then Have a Chunk Taken and Placed into the Dream Bucket. in Other Words, Any Dream Money is Acting as the Spoils of Your Investment
2. The More Common Strategy is to Simply Take a Small Slab of Their Disposable Income as Their Dream Money. There’s Nothing Wrong with This, but the Chances of Gaining a Larger Income from Your Investments is Reduced
Risk and Reward
The only situation where you can save money risk-free is through your own personal expenses. Everything else is a risk and could potentially drain the last drops of your growth bucket. Investing is a tricky business and you shouldn’t jump in blindly. Always go with what you know. If you are having problems, seek out tuition in the form of classes, books (like this one), or even just through chats with investors who have already achieved their dreams.
Risk and reward is an interesting concept because people approach it differently. Successful investors ride their winners and cut their losses as short as possible. Most unsuccessful investors are so afraid of their losses they won’t cut them until they have annihilated their finances. Peter Bernstein, writing in his book Against the Gods: The Remarkable Story of Risk, outlines exactly why this phenomenon exists:
“It is not so much that people hate uncertainty – but rather, they hate losing. A loss taken is an acknowledgment of error.”
You have to avoid this at all costs. Acknowledging risk has to be taken to gain a reward is the first step to successfully growing your finances through the three buckets method. Saving doesn’t just include yourself, it’s about going on the attack to save what you would potentially lose in the future. Look at it in the long term, the economy could crash tomorrow and most people would lose everything. Ride out your investments, place your money wisely, and survive even the most devastating economic storms.
Summing Up
To sum everything up, saving begins with yourself. Start by getting rid of any lingering debt because it’s acting as a giant weight to stop you from reaching your full potential. Implement some measures at home to save some additional money for investing later on. A frugal lifestyle is a winning lifestyle.
Use the three buckets method to cordon off your finances and save money for the long term. A security bucket is there to sustain you should the economy or your investments go bad. The growth bucket is there to help you advance forward; a form of aggressive saving. And the dream bucket is there to make your dreams come true.
Investing essentially centers on the concept of risk and reward. You have to spend money to make money. But what separates the good investor from the bad is the way in which losses are handled. Good investors know when to admit defeat and cut their losses short. Bad investors will continue on until they bring desolation onto their own finances.
Do not just get rich, stay rich by employing tactics of aggressive and defensive saving!
