Editor’s Note: UPDATED as of October 29, 2016 for relevance and accuracy.
When I was about 5 or 6, I received my allowance from my dad. As soon he handed me the five dollars, I wanted to go to the store and buy candy. Living next door to a 7-11 didn’t help matters. That day, I received more than an allowance from my father.
He gave me a financial advice that I still use 30 years later.
The best financial advice I ever received…
First Lesson: Pay Yourself First.
My dad encouraged me to save 20 percent from every allowance (later checks) I received. He told me that if I couldn’t save 20 percent, start saving at least 50 cents and watch how the money would add up. But what kid wants to put away money?
Well, when my dad broke down how much saving 50 cents from my bi-weekly allowance added up to over a year, I was all in. Throughout the years, I have read many financial books like “Rich Dad, Poor Dad” and “Secrets of the Millionaire Mind”. Each book have reiterated the financial advice my dad gave me when I was 5 years old:
“Pay yourself first. Save 20 percent out of every payment your get”.
Second Lesson: Avoid Credit Cards.
As a Freshman in college, I applied for a credit card to build credit. The card was sent to my parents’ address. Being that I am named after my dad, he thought the mail was for him and he opened it. Boy ol’ boy did I get an earfull. My dad isn’t the type to yell at you, but he will lecture you until the cows come home.
He told me “Usually, I will like you make your own decision. But this time, for your benefit, I’m cutting this card up.” He explained to me that millions get into debt due to buying things they cannot afford – and credit cards enables people to get into debt.
He told me ways to build my credit without using a credit card. He also told me that if you cannot afford something, you don’t need to buy it. Wait until you save up money to buy what you need. Perhaps then, it will cost less. Again, after reading many financial books, these words are echoed throughout them.
Using these two lessons, which are definitely the best financial advice I have ever received, a person can obtain their financial goals by starting small.
If someone has trouble saving $20 from every paycheck due to bills, start with 30-50 cents. This doesn’t sound like much, but it all adds up. Plus the whole practice of paying yourself first will trigger you to put more money aside.
Your mindset starts to analyze if you’re spending money for needs or just wants. A person will definitely start to spend less on their wants, which means they will save more. Simple things like putting coin change that you get from a purchase into a piggy bank, adds up.
In my YouTube videos I always speak on starting on the ground floor in order to reach the top floor. You have to start from the bottom up. Try it, stick to it for a month and you will see the results.