Many people struggle to save money and build up their wealth. According to recent research from Finder.com, one in three British adults has less than £1,500 in savings, while 15% have no savings at all.
However, if you’re struggling to save, you may be interested to learn there’s a really simple trick that can help you save more money no matter how much you earn. This simple ‘payday trick’ could be the key to getting rich.
Always pay yourself first
The savings strategy I’m talking about is known as ‘paying yourself first’. Often referred to as the ‘golden rule’ of personal finance, it’s a simple strategy that makes saving money far easier. If you put this into practice regularly, it could help you build up substantial wealth.
The way it works is that instead of waiting until the end of the month to save money (like most people do), you put a certain proportion of your income away into a savings or investment account – either by direct debit or manual transfer – as soon as you get paid. In other words, before you pay your rent, your bills, and all your other expenses, you pay yourself, making your savings pot the priority. Once you’ve done that, you can then spend the rest guilt-free.
The reason this strategy works so well is that it removes the temptation to spend your money and forces you to be more disciplined about saving. If the money isn’t in your bank account, you won’t be tempted to spend it at the pub, or shopping on the weekend. The chances are you won’t even miss the money you’re saving if it’s not in your account in the first place. However, your savings pot will build up over time.
Get your money working for you
Of course, to really build your wealth, it’s also important to get your money working for you. If you keep all your money in a basic savings account earning 1% or so, you’re not going to get ahead once you factor in inflation.
One of the easiest ways to earn a good return on your money – assuming you have a long-term investment horizon – is to invest in the stock market. This form of investing is often seen as risky because the stock market can be volatile in the short term, meaning the value of your investments can go down. Yet over the long term, stock markets tend to rise, meaning if you’re willing to invest for a period of five years or longer, there’s a good chance that you’ll earn a solid return (6-10% per year) on your money.
Over time, the combination of paying yourself first and growing your money at a healthy rate through the stock market is likely to make a big difference to your wealth. The sooner you get started saving and investing like this, the more money you could build up.
If you’re looking to learn more about how to grow your money through stocks, you’ve come to the right place.