Micael Widell

Personal finance for dummies

I have followed a rule since I was around 20 years old. It has given me financial security even though I haven't had very high income. It has enabled me to buy the apartment I wanted and also it gave me the starting capital for starting my own company.

I think I learned this rule either from Rich dad, poor dad, or The Richest Man in Babylon, or some other similar self help book.

The rule is simple: Always pay yourself first. Every time you get your salary, the first thing that you do is to always put away as much money as you can into a long term investment account. You should decide on a minimum ratio of your salary that goes to saving. For me, the rule is that I never ever spend less than 20% of my income on paying debt or saving in long term investments (these two are variants of the same thing anyway).

I have done this for at least 10 years now. Often I save much more than 20%. And I did this even when I lived on a student allowance of around €700 per month. I am generally not very good at making and sticking with habits, but this habit I have always stuck to. I have learned to associate a feeling of pleasure with investing money.

What should I do with my saved money? The main rule here is that you can never ever use it for anything else than investments that you expect to give more money back. Consider the money "gone" once you have put it away. When you get dividends, you reinvest them. You can never take money out to spend on perishable things like a car or a TV.

For example I have always by default bought stock in publicly traded companies with this money. I have also done other things like paying for my living expenses while getting Fyndiq off the ground, as I considered that an investment that would make my stock in Fyndiq worth a lot more.

Over the years I have learned a lot about investing money. Today I do wiser investments than when I was 20 years old... :) The nice thing about this is that because you do not have a lot of money in the beginning, you can learn and fail without loosing too much. Then as your savings grow you also get better at investing and don't do as many bad investments.

If you live by the above rule, you will have a lot of money in the bank in just a few years. After 20-30 years you will be a lot richer than most people, no matter how low your income is today. And remember, you can always get by on 10% less than you are used to today.

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