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The golden rule: Pay yourself first.

If you think the only road to riches is through a fat paycheque, think again. Financial experts say one of the keys to building wealth is to "pay yourself first." They call it the golden rule of personal finance.

Pay yourself first is a forced saving technique that simply means you consistently set aside a certain amount from your salary each month before you take care of your living expenses or make discretionary purchases.

In other words, before you do anything else with your paycheque at the end of the month - before you pay your landlord, electric company, credit card firm or car dealer - the first payment made should be to yourself. You work hard for your money. It's just fair that you pay yourself first before anyone else.

A lot of consumers do it in reverse. After each paycheque, they pay the rent, electric bill, credit card fees, and maybe schools charges and personal loans. Yes, they love to save, but after all those bills, there is no more money left to put in the bank.

And even if there is, there will always be reasons to spend it: the car breaks down, the house needs new furniture, or an emergency trip back home has to be arranged. Before they know it, their pockets are empty and they scramble for another loan. They swear they will try to save next month, but most likely, they never will. They may get a raise or a bonus, but they still end up broke.

So, how to reverse the pattern if you fit into this spectrum? First, decide how much of your salary you can commit to save each month.

There are many ways to incorporate forced savings. One example is to put your money into an account that you can't access easily.

Talk to you bank's representative and arrange to have say, 10 per cent of your salary transferred from one account to another automatically every payday. Financial gurus say you should treat this as your first and most important monthly bill.

Miracle

However, bear in mind that this strategy doesn't create a miracle. After paying yourself, you will still need to pay your bills. If the remaining cash is not enough, find ways to raise extra money.

Do whatever you need to do to protect your savings - even if it means working extra hours; getting a part-time job; moving into a smaller apartment; taking a bus to work and cancelling your credit card, magazine subscriptions or gym membership.

This may sound tough, but if the idea of being in a difficult financial situation for the rest of your life doesn't sound like a better alternative, it's better to give up your perks now.

Every dirham you set aside today is a seed to your financial future. If you are committed to it, your wealth will certainly grow over time.

The day will come when you no longer need to juggle between jobs, rent a house or take the bus. Until then, just be diligent.

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Publication:Gulf News (United Arab Emirates)
Date:Aug 30, 2008
Words:520
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