In order for us to achieve financial freedom or at least plan for our financial freedom, we need to look at how rich people save and spend their money.
Obviously, we, the poor people, are missing something that’s why we are not rich or at the very least we have no inkling how to be rich.
We all know how the poor people spend their money and their idea of saving because this is what we are used to.
Poor people’s way of saving: (Poverty Formula)
Income – Expenses = Saving
The issue with this formula is we are not prioritizing paying ourselves first or saving for the future us. Thus, it most of the time mean there is no money left for saving and worse we may even need to borrow money because we didn’t manage our money properly.
If you look at the way rich people spend their money, it is guaranteed that their future selves will be thanking them for saving and investing during their younger days.
Rich people’s way of saving: (Prosperity Formula)
- Basic: Income – Love Offering – Savings = Expenses
- Advance: Income – Love Offering – Investing = Expenses
- With Debt: Income – Love Offering – Savings – Investing – Debt Payment = Expenses
Note: Love Offering is similar to tithes but this is dependent on what you are willing to give. If you look at the Bible, it is 10% of income.
Most financial advisors will advise you not to start investing until all debt has been paid up.
But there’s another school of thought that if you wait until all your debt has been paid up you will feel discouraged because you are buried in debt and to make matters worse is you have no savings or investments.
So, this other school of thought is recommending dividing 20% of your income across your debt, savings and investments. At the end of the day, it is up to you. Do whatever works for you.
Whatever formula you choose, you will be able to save and even invest and you will be forced to either live within your means or expand your means by finding additional source of income.