The majority of us want to become rich, but without any windfalls happening, this is something we are going to have to do ourselves and no matter how you look at it, it’s going to take time. If you have not had the chance to read “The Wealthy Barber” then I highly recommend that you do so. I believe that it is one of the best books on personal finance because not only is it an easy read, but its message is so simple to put in practice that it will make you wonder why you haven’t been doing it all along. The book was written in “” but its principles are timeless, and it has influenced a few generations of people into saving money for the long term

The method described in the book can be found almost anywhere you look these days, and it is commonly referred to as “The Golden Rule” of personal finance. And it is, quite simply, save 10% of every paycheck for the long term. I know, it’s not rocket science, but before you go and click away from here, stay a bit long and hear what I have to say. There is one more part of this rule, which is mentioned in the book, and I believe that it is the glue that holds this whole thing together. “PAY YOURSELF FIRST”, you see, right now you may be thinking that you can’t possibly afford to take 10% of every pay and save it. You just have too many bills and other obligations, or every time you have tried in the past you end up spending the money you wanted to save. Well there is an easy way of fixing this so you won’t even notice that the money is missing. Talk to your bank and get the money moved out of your account every week automatically before you ever get the chance to see it. Within a month you will have forgotten about that extra money and you’re lifestyle hasn’t changed a bit. I challenge you to try this, and tell me that it doesn’t work!

At this point you should be saving 10% of every pay, and it should be coming out of your account before you can lay your hands on it. Good, now your probably thinking, we’ve covered the “Easiest Way to Save Money“ part of this article, but how about the Becoming Rich part! I’m guessing the majority of you have only lasted this long because of the promise I made of becoming rich. Well, using this method becoming rich is a definite possibility, and the younger you start saving, the higher this possibility becomes. You see, as much as I’d like to tell you of a method get rich quick, this isn’t it, this method to becoming rich takes many years of following the golden rule. But if you do, then you WILL become RICH. And this happens because of a little thing called Compounding Interest. What Compounding Interest comes down to is this, Whenever you gain interest on your investment, as long as its reinvested in the same vehicle, you are going to start gaining interest on the principle PLUS the newly added funds. For example, for simplicity lets say you start with $1000, and bring in an annual return of 10%, so after the first year, you are going to have $1100 ($1000 + $100 from interest). The following year, you are going to make $110 in interest, so you'll then have $1210 in your account. Now the next year you will end up with $1331, ($1210 + $121), remember that we haven't added any extra money to this account, but if you were adding your 10% every pay, then this really adds up fast, I think you can see how this account is really going to start to grow, and the whole compounding interest thing will allow it to grow faster and faster. Here is an example straight out of the book (Where I've removed some extra text between the question and the answer) , "'If you had started putting thirty dollars a month away, the equivalent of a dollar a day, at age eighteen and you continued until age sixty-five, how much would you end up with?' ... 'I'll say about $70,000' ... 'Close' ... 'The answer is approximately $2,000,000'". So remember, while the balance is low, its going to grow slowly, but as time goes on, its going to start growing at an alarming rate. What does this mean? START AS YOUNG AS YOU CAN, which basically means, START NOW! because when it comes to compounding interest, time is your best friend.

You might be thinking, ok, but what do I do with this money, do I just put it in a savings account or what? well, If you have read any of my other articles, you'll know that I am fairly biased towards dividend paying stocks, but the thing to remember here, is that you are investing for the LONG TERM, so in general the market always goes up in the long term, in the short term it will have its ups and downs, but we can be fairly sure, that over time it will always be heading up. So what this means is that you want to do all your investing yourself, then its best to invest in a broad based index found, ETF, or mutual fund that has both domestic AND international exposure. And make sure that the ACTIVE fund manager has a very good (and long) track record of good returns.

I highly recommend that you go out and read the book The Wealthy Barber, because it really is one of the best personal finance books around.

Edit: This Article Was featured in the Rich Life Carnival #2 which can be found here