Spend Less Than You Earn. Save and Invest the Rest.

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Your primary aim during your ‘employment’ phase of your working life should be to save and invest as much as you can. Earned income is very precious and it is bloody hard work. This money is your eventual route to Financial Freedom – But only if you hang on to it and save it and then invest it. (More on the difference between ‘saving’ and ‘investing’ later).

It doesn’t really matter that much whether you are a small earner or a big earner, the key to Financial Freedom is to save and invest, and you do this by spending as little as possible. The luxuries of life can wait until you have investments that will pay for them rather than you having to work your ass off all your life to pay for them! There are 100,000’s of big earners who are heading for a lifetime of the ‘rat race’ because they spend all they earn and save in invest nothing or only an inadequately small amount. Doctors, Dentists, Accountants and Small business owners are some of the worst out there. They are supposed to be the intelligent ones, yet then have never received proper Financial Education and so don’t know what to do, so, by default, they spend all their earnings!

On the other hand you get people on low and medium incomes who, with a bit of Financial Education end up becoming Financially Free, even Wealthy.

I used to work with a lady who has spent many years working in a Building Society – she told me a story one day about how she was constantly amazed at the number of ‘little old ladies’ who had hundreds of thousands of ££££’s in their accounts. At the time that was equivalent, in today’s money of Millions of £££’s. When my friend chatted to these customers, she often heard the same story – it was one of normality, most of these women had worked and lived a normal working life, yet they put their wealth down to : frugality, saving and investing. Each of her ‘little old ladies’ was Financially Free, yet most of them had worked normal lives, with normal jobs, working-middle class people. The real shame for me was my friend never took the bait, she never took a leaf out of the old ladies books and she’s still working today to pay her monthly bills.

So, Drive a big wedge between what you earn and what you spend. The more you can save and invest each month, the sooner you will become Financially Free. Review your current spending. Cut out anything you don’t really need, reduce essential income by finding cheaper suppliers. Save and Invest all the money you have spared. Getting into the habit of saving is an essential behaviour you need to learn, and you need to learn it now. Not next month or next year. The longer you delay the longer you will be waiting for your day of Financial Freedom. Do some web research on a) Parkinson’s Law and b) Pay yourself first.

Parkinson’s law – “The demand upon a resource tends to expand to match the supply of the resource.” When applied to your income this means “your expenditure rises to meet any rise in your income”. Think back – how many times has your annual pay rise simply been swallowed up with an increase in your monthly expenditure? Always I bet! The trick here is to save and invest any pay rises you get. If you managed to live off the previous income, you can certainly afford to save and invest the extra.

Pay Yourself First – simply means you pay your savings and Investments first each month from your pay. Live off the rest. Even if you are in debt. Why? Again the sooner you get into the habit of saving and investing, the sooner you will become Financially Free.

What is being Financially Free? When the income you receive each month from your investments covers all of your living expenses you are Financially Free – i.e. you no longer need to work and will have enough money for the rest of your life!

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