The Best Financial Advice I’ve Received In My Life

Posted by Fitz Villafuerte under Money Saving Tips, Personal Finance on April 5, 2016

In chess, there’s a strategic principle called “forced moves” wherein one player limits his opponent’s next move to only one or two options.

For example, by attacking the other player’s king (check), his opponent is forced to remove his king from danger on his next move or else he loses the game — and usually he only has one possible move to get his king to safety.

Forced moves normally happens later in the game, and the player who can successfully pull off a series of forced moves on his opponent often ends up winning.

forced-savings

Several days ago, I delivered a talk to college students about money management and one of them asked me what’s the best financial advice I’ve received in my life.

Without hesitation, I answered that it was to pay myself first; an advice I read from the book, The Richest Man in Babylon.

Paying yourself first means immediately taking and saving a portion of your income before spending your money on everything else.

This principle is what most financial advisers call “forced savings”, which is better stated through the formula: Income – Savings = Expenses

To illustrate, if you earn P20,000 a month, and you commit to paying yourself first 10% of your income, then you have to set aside P2,000 during payday, and budget the remaining P18,000 for your living expenses.

I usually recommend starting at 10% and then slowly building up to my ideal portion of saving at least 30% of your income.

Why is doing “forced savings” the best advice I’ve received?

Just like in chess, by pulling off a series of “forced savings” on yourself — by making this saving strategy a habit, you’ll eventually win the game of wealth. Why and how?

Advertisement


Because when you immediately set aside a portion of your income as savings, you’ll be forced to live within what’s left of your salary — it forces you to live within your means.

Now, if what’s left is not enough, then you’ll need to have a closer look at your spending by tracking your expenses, creating a budget, and forcing yourself to eliminate unnecessary expenses.

If unfortunately, this is still not enough, then you’ll be forced to find ways to increase your cashflow by creating new and other sources of income.

As you can see, paying yourself first creates a series of “forced moves” on how you manage your finances.

And when you do it long enough, you’ll eventually have enough savings to serve as your emergency fund, and anything beyond that now becomes your investment fund.

A part of all you earn is yours to keep.

It’s a simple financial advice and fairly easy to do, but it’s a powerful strategy that unfortunately, a lot of people ignore.

Most people think that becoming rich is a complicated matter — that it requires understanding the economy, leveraging resources, putting up a business, investing in paper assets, and many other stuff.

While knowing those are important and could become necessary later on, the real journey to wealth starts with one’s ability to simply save money.

And when it comes to saving money, doing “forced savings” is the best strategy and the best financial advice I could give.

Enter your email address for your free subscription to Ready To Be Rich:

———
Photo credit: habibaha


SELECT AN ARTICLE TO READ NEXT BELOW:


Tags: , , ,

5 Responses to “The Best Financial Advice I’ve Received In My Life”


  1. Gen says:

    We often disregard the small things. That’s the problem and also the solution. You nailed it down sir on this topic.

  2. vicel says:

    Your blog really inspires me a lot to handle my earnings well. Though I’m having a hard time using your forced move technique, atleast I am applying it little by little..and hoping soon that I can master it. God bless. 🙂

  3. Togs says:

    Glad that I learned this lesson 6 years ago when 3k from my first salary goes directly to my savings. Nagbabaon lang ako nun at nakikisakay para mabuo ko un. Mcdo lang ang date. haha. 6 yrs had past, i still apply the same lesson. Force of habit. Di na natanggal sakin. Lifestyle grew a little bit (jollibee na). But I still make sure na mas mataas na ung % na dinadagdag ko ngaun sa investment tuwing tumataas din ang sahod.. I would say that it all start sa mindset that produces the habit. I was young that time. It was my first salary but I am aiming for my retirement. Sabi nga… Begin with the end in mind.

  4. Karl says:

    I totally agree with you sir. Im already 32 yrs old and how I wish I knew this ahead of time.

  5. Aldwin says:

    I couldn’t agree more with Fitz. The goal of ‘paying yourself first’ is to make sure that your wealth-building strategies to achieve your financial goals are covered first before you spend any discretionary money.

Leave a Comment and Join the Discussion