Updated: April 9, 2022
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 happen later in the game. And the player who can successfully pull off a series of forced moves on his opponent often ends up winning.
Several days ago, I delivered a talk to college students about money management. 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; a piece of advice I read in 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. Afterward, you have to budget the remaining P18,000 for your living expenses.
I usually recommend starting at 5% 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?
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 cash flow 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. Then anything beyond that now becomes your investment fund.
A part of all you earn is yours to keep.
It’s a bit of 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 requires understanding the economy, leveraging resources, putting up a business, investing in paper assets, and much 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.
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