The Richest Man in Babylon by George S. Clason is a life transforming book. It teaches you to live within your income, while investing and paying off debts concurrently.
Essentially, it teaches you financial principles to meet your present needs, escape the debts of the past and ensure your future prosperity.
This is what I learnt and now practice:
For sums I earn, that are given to me or are proceeds from investments, I take out 30% FIRST – 10% for giving, 10% for investing, 10% for settling debts (if any). Then I live within 70% of my means!
When I take out the 30%, I pay it out IMMEDIATELY (give, invest, pay debts) so it doesn’t remain in my account. That way I am FORCED to live with the remaining 70%. No amount of emotional blackmail or crisis can touch the money. It’s left my hands!
The key to financial discipline is to know what you’re going to do with money before it comes your way and to disburse it immediately it comes. If not, you’ll end up spending money that isn’t technically yours, including money meant for suppliers, contractors, staff or your future.
Another principle – Keep a daily or weekly record of spending by category – giving, food, provisions, entertainment, debt service etc. At the end of each month (and at year’s end), insert the figures and plot the charts in Excel. You may be surprised at what you regularly spend the largest proportion of your money on.
Money doesn’t lie. Spending patterns are an insight to life’s priorities. They also identify never before seen leakages. Documenting your spending builds the habit of tracking expenditure and keeping receipts. It breeds responsibility.
If you choose to practice these principles, I’d like to hear from you about whether they helped. I’m @SubomiPlumptre on Twitter.
I wish you all the best on your financial journey.