Spend Less Than You Earn
This is probably my favorite personal finance tip of all time and if you do only this, and nothing else for your entire life, you’ll probably retire rich, or at least comfortably. I’m currently writing a book about personal finance for English teachers abroad and this is the maxim that the entire book is based upon and the point that I keep coming back to, again and again.
How to do this in your actual life? I have a few tips for you:
1. Pay off all debt that you currently have, as fast as possible and do not accumulate more.
2. If you want to buy/consume something, save up for it. Cars, vacations, electronics, education. The only exception to this is a house, but you should make sure you put down a sizable down-payment.
3. Don’t compare yourself to others. Maybe all your friends and neighbors are driving flashy cars. Who cares….maybe they went into $100 000 of debt to be able to do that, which is just financial suicide. Thriftiness is trendy these days anyways, isn’t it?
4. Even if you get a raise at work, don’t inflate your lifestyle to that full extent. Sure, take a bit nicer vacation to celebrate or buy a car that you couldn’t have afforded 10 years previously, but don’t spend every last cent of that raise before it even hits your bank account. Continue to live frugally, at least in some areas of your life.
5. Compound interest. Remember that it is a powerful force which can either make your rich, or poor. Make it work for you by spending less than you earn, always, no matter what.