“A penny saved is a penny earned” -Benjamin Franklin Now that you know your net worth, it’s time to start growing it! So how can you grow your net worth? By following the Golden Rule of Money. Once you internalize and live by the Golden Rule, you’ll be financially unstoppable. Here it is:
Golden Rule:“Do not save what is left after spending, spend what is left after saving”
I highly recommend reading the Golden Rule again. It’s some of the most valuable advice you’ll ever receive. You might be thinking “it's obvious!” but I would disagree. Without a doubt, the vast majority of Americans do not follow the Golden Rule. It’s possible that you’re in that majority today. But if you continue down the Path, you’ll be using the Golden Rule to grow your net worth before you know it!
One other question about the Golden Rule: who said it? The answer makes a lot of sense. The quote comes from Warren Buffett, one of the most financially successful people in history, who had a net worth of $84 billion in 2017. Buffett gives outstanding financial advice, and the Path to Financial Freedom happens to align to his teachings. Not bad company to keep!
Hopefully you’re excited to put the Golden Rule into practice. The great news is implementing it will be easier than you think!
To start “spending what is left after saving,” you’ll need to set up regular savings. This means putting money away on a regular basis. To start, I recommend putting away money every time you get paid, whether that’s weekly, every other week, or monthly. Below is a step-by-step guide on how to get started.
Setting Up Regular Savings
If you have high interest debt (i.e. student loans, auto loans, credit card debt), replace all mentions of “savings” below with “debt reduction.” Once you’ve paid off your debt, then it’s time to build savings. Start by paying down your loan with the highest interest rate. For example, if you have credit card debt with a 25% interest rate and auto loans with a 15% interest, start with paying down the credit card debt.
Choose how much money to save each time you get paid. You can start with a small amount, whether that’s $100, or even less. Choose an amount you’re comfortable with, while also challenging yourself. You’ll increase this amount over time.
Do you have a bank account? If so, skip to the next step. If not, I highly recommend opening one. If you’re unable to do so, go ahead and choose a safe physical place where you’ll keep money you’ve saved. For the rest of this article replace the term “savings account” with your safe place.
If you have a checking and savings account, turn on automatic savings to move money from checking (spending money) to savings (your money) each Monday after you receive your regular paycheck.
If you can’t set up automatic savings, manually put money into your savings account every time you get paid.
Once you’ve started contributing to savings, DO NOT take money out unless you absolutely need to. This is your money which you’re building up for a happier life. If you do need to take some money from savings (should be a dire, life-or-death situation), put extra money into your savings account going forward to refill it.
Let it grow! If you stick to the plan, you’ll be amazed at how quickly your savings account builds up over time. You’ll gain a new sense of financial peace and will be starting down the path to financial freedom.
As with previous challenges in the Path, do not move on until you’ve completed the above items. Regular savings are the key to achieving financial freedom. The best time to start is right now!
Now that you’ve set up regular savings, you may be wondering how you can afford to keep contributing to savings, especially if you were barely making ends meet before. The answer goes back to the Golden Rule. You’ll need to limit your spending to the money you receive after saving.
In Step 4, we’ll talk about how track spending to ensure you’re following the Golden Rule.