Savings can make millionaires and spending bankrupt

Sprinter Marion Jones is down to her last $2,000, according to The Los Angeles Times. The same athlete who won five medals, including three golds at the 2000 Sydney Olympics, shone on magazine covers, and signed multi-million dollar endorsement deals.
Come 2007 she has been declared bankrupt. This is something similar in the movie Tara Rum Pum where the hero plays a car racer who travels a similar path from wealth to insolvency.
The film had an important message: one should save for a rainy day and plan well for the future. The reason is clear: history shows that any income can be spent. Becoming and staying wealthy is not a matter of earning more, but of keeping what you earn.
There are plenty of riches to rags stories of business tycoons, builders, brokers, media celebrities, and sports stars going bankrupt, due to several reasons, including:

* Faulty business plans
* Excessive concentration of assets in one asset class
* No written plan for managing money for the future
* Inadequate savings to maintain one’s current lifestyle in the future
* Purchase of unproductive assets

The current scenario is an era of unprecedented opportunities and income levels.

At the same time, there are also more ways than ever before to consume and spend. No matter where one lives in India, chances are that he can have his favorite brands of coffee and pizza, and the latest car.

Which makes that one basic financial rule all the more important: plan your finances, not just to create wealth, but also to leave some of it behind for the next generation and for society. With this rule always in sight, it is easier to keep the money earned without sacrificing the good life.

Those who appear rich are not necessarily rich. What ultimately matters is not how posh one looks but that of having a high net worth. The important point is not how much an individual earns but how much he is able to save and more importantly how much of it is put to productive use by investing.

People who earn in thousands can become millionaires by diligently following the path of savings and investments. There are several examples of them in current economy. At the same time, people who have earned in millions of dollars have later faced bankruptcy, including some of the noted film stars and celebrities.

There is a tendency today among many people to live a page three lifestyle on a working class income. Current lifestyle has become more important than saving for a rainy day or for one’s future. One would like to boast that he or she is enjoying the life each day to the fullest or that he or she never plans ahead saying today is important than tomorrow. This may sound fashionable, but it’s certainly not prudent and sounds a future bankruptcy.
People often give into impulse buying without considering what such purchases are doing to their financial lives. It’s marketer’s job to strike an emotional chord and get one to buy things that he or she can’t afford or don’t need, and perhaps don’t even want. A gentleman in Dubai thought nothing of shelling out Rs 20,000 for a day’s drive in a Hummer, and then complained that saving was a tough thing to do.

He drew up many spending budgets, but somehow the savings never piled up. Don’t keep an expenses budget; keep a savings budget. Implementing and following an expense budget is tough. One might keep it up for a month, several months, or even a year.
But such budgets are doomed to failure; a time will come when one just can’t resist the temptation of some new gadget, a new car, or a nice vacation. Better to just set a savings target of 15-25% of gross annual income, and invest this amount in gainful returns.

The money should be deployed productively in investments whether cash, debt, equity, or real estate. If this plan is followed consistently an individual will surely end up wealthier and safer than even people who earn more than him and show off by “looking” rich. This is the principle of “Pay Yourself First”.
“Pay Yourself First” principle with very modest amounts of Rs. 50 and Rs. 100, starting in the 1970s was followed by a Mr.X. He kept this up for 16 years, until about 1995, after which he saved relatively less. In 2003, his portfolio was worth Rs. 5 crore, and in 2007, around Rs.12 crore.

Keeping money is as important as making money. What you do with your income today determines what you can do with it tomorrow, whether it goes up or down. It’s just not productive to think one will be able to definitely start saving when he makes more money or his earning is not enough to save, and he must increase his income.