Following this changed my life.
Following this changed my life. I learned this from the book “The richest man in Babylon”.
1. What the book suggests:
The most important thing in money management is the allocation of the funds from your salary. Let’s assume that your only income stream is your salary.
10% — keep it separate (savings. Save it for a year and later invest it.)
20% — Pay your debts
70% — For all your expenses.
It’s that simple.
2. What I learned from this:
What I learned and followed from this is the allocation process. I never allocated my funds before but now, once I receive my salary, the 1st thing I do is allocating my funds and it helped me a lot.
3. Do your own allocation:
Take this Numbers as an example. Do your own allocation. If you don’t have debts, keep some percentage for emergency fund, some for investment. You can have a diversified allocation. For example,
60% — Necessary things (food, rent, groceries, etc.)
10% — Shopping.
10% — Investments. (5% on stocks, 5% on mutual funds.)
15% — Travel, party, night outs, etc.
5% — Emergency fund (for emergency needs)
4. When to adhere and when to adjust:
If my shopping allowance for the month is over, then I’m not shopping this month again. No matter what the discount/offers are. Even if they are giving it at 90% off. I’m not buying it. You should strictly adhere to it. If I have excess shopping allowance, I’ll carry forward it to the next month allowance or better I would invest it.
You can adjust when it comes to your necessary needs. If you need more for your necessary things in the end of the month, you can always get some from other allocations except investments and emergency. You should never touch it. That’s the main purpose of the allocation. But if you need more in the beginning or in the middle, either you are spending more than you need or you need to redo your allocation.
5. Where to invest?
You have done your allocation. You have funds with you to invest but you don’t know where to invest? I’m not providing you with any investment tips. That’s your job to do. I suggest you to save for 6–12 months and that’s a ample time for you to learn more about investments. Where to invest and how to invest. I suggest invest in yourself first, that’s a very good start and that will make a huge difference in the future.
Thanks for reading!
