Introduction
Becoming a millionaire doesn’t happen overnight. And it doesn’t start by throwing loads of money into investments.
On the contrary, the millionaire journey begins by SAVING money. They do that because that encourages you to be DISCIPLINED with money.
That in turn means you start to VALUE money. Put the three together, and you have the basisfor a strong financial strategy. A strategy that serves them well for their future financial security.
What we are talking about here is building a savings habit and setting financial goals. Making long-term investments comes later.
Strategies for building a savings habit and setting financial goals
The art of saving like a millionaire is something anyone can become skilled at. At the heart of that art is something called The Money Management System.
It’s basically a way of dividing up your monthly income into various “pots” or bank accounts.
By doing this, you are making sure every penny of what you have is used to its best. Millionaire’s never waste a penny. Every penny is accounted for.
And this philosophy, this ethos, is not just a once-a-month thing. It’s part of their mindset. It’s in their DNA.
Saving money, valuing money is a HABIT.
And when you adopt this positive and respect for money it becomes a habit. Then there’s no limit to how much wealth you can build.
How The Money Management System Works
You start with your one bank account, where all your income arrives. But instead of having it all go out again with various direct debits, standing orders and expenditures, take control of it instead.
You decide where it should go by moving sums to the other “pots.”
These pots are:
- Investments/Savings
- Musts/Necessities
- Wants/Other
- Disposable Income
The idea is to distribute specific percentages of your income into these pots each month.
For instance:
- 20% Investments/Savings
- 50% Musts/Necessities
- 20% Wants/Other
- 10% Disposable Income
The act of doing this immediately creates a disciplined approach to how you use your money.
The trick, of course, is to stick with it. You start sticking to it, being disciplined, you end up teaching yourself how to be disciplined.
The Money Management System is a powerful tool to help you build healthier relationships with money.
Because money should never be taken for granted. Especially in times of economic crisis.
1: Investments/Savings
You may have noticed that #1 in the list of pots is Investment/Savings.
Ordinarily, you might think this is the last pot to put any of your income into. You would put whatever is left of your income into this account, right?
Well, no, millionaires get to be millionaires because their first thought is –
SAVE and GROW
They know that by saving money, they also have more money to invest with. The money they might have spent on something, but didn’t, can now be used to invest with.
The beauty of making sure you put money into your investments and savings first, is that it makes you more self-aware of where you put the rest of your money.
Again, it gives you discipline.
2: Musts/Necessities
There are many things we must have and pay for. Obvious things such as rent, mortgage, council tax, gas, electric, water, food, TV license.
You might need to drive to work, so fuel and car insurance would be other musts. Or you commute by train or bus, so transport fares would be necessities.
So, these might add up to 50% of your income. Once you have deposited your 20% into savings/investments, and the 50% into this account, that leaves you with 30%.
This is when you really need to get tough with yourself.
3: Wants/Other
This account covers things like subscriptions, Netflix, Amazon Prime, Apple Music, iCloud storage, broadband, mobile phone and so on.
It’s a high-tech world we live in. Probably 20% will be needed to meet this expenditure.
But maybe it could be lowered? Take a good hard look at yourself here.Be real with yourself.What do you really NEED and what could you GIVE UP?
Arguably, in today’s economy, a gym is a privilege. Netflix is a privilege. Sky TV is a privilege. You can bring that all down.
And maybe you are paying for things you didn’t know you were? How many times do we get caught out paying for something after having that 14-day free trial?
It’s so easy to forget what we have signed up for! Yet it can be costing us unnecessarily.
This account is definitely one of two where you can make real savings. It helps you evaluate your own lifestyle. As well as help you to start valuing money more.
Millionaires will actually ask themselves before buying anything, what value will that item bring me?
If it has no real value, they won’t spend their money on it.
4: Disposable Income
This is your “self-care” or fun account.It’s disposable income for weekend’s away or dinner out or some new trainer’s.
Now, having put 20% in your investments/savings; 50% in your musts; 20% in your wants that leaves only 10% for your fun.
Can you face that prospect? Self-care is important. It’s as important really as growing your wealth.Because if you’re not healthy, you’ll never be wealthy.
It’s another trait of the millionaire mindset.Real millionaires stay millionaires because they are healthy.They are not popping champagne bottles in the club every weekend or spending so lavishly all the time they end up going broke.
Self-care, self-love. It’s vital to growing your wealth.A healthy mind = a wealthy future.
But if you are someone who has a lot of fun, is it more fun than you need? Is it extravagant fun? Does it have real value?
Be tough, ask yourself. Maybe it’s time to change. And use that money more wisely?
Other Pots
Investments/Savings. Musts/Necessities. Wants/Other. Disposable Income. These are the 4 main pots of The Money Management System.
But that doesn’t mean you can’t have more pots and divide your money further between them.
For instance, have oneto invest in your trading investments education.
Because another thing millionaires do is they never stop learning. They never stop looking for ways to increase their wealth, build for the future.
Growing their wealth for themselves so they can live comfortably in retirement. But it’s also wealth for their family.
When you start to be present to your money you actually understand the importance of it.
You and money – it’s a relationship.
In Conclusion
Saving money in the first place, is key to how millionaires became millionaires in the first place.
Cutting your expenses actually gives you more money to invest with.
Quite simply, all the money you save and not spend can go to making more money.
It’s as simple as that.
And our very own Investment Mastery Money Management Calculator is a very simple way to help you start managing your money better.
You can get yours by subscribing to IM Insider, here.
IM Insider is also a great way to get an expert introduction to investing and trading education.
We provide access to an entire suite of fantastic educational material such as: online video courses, workshops, Masterclasses, books and guides, plus exclusive memberships.
