Now that school is back in session and the kids are out of the way, it seemed like a good time to revisit this timeless financial fundamental of paying ourselves first.
When I received my first commission check in 1992, I was awed by the fact there was a comma involved. As I sat and thought about all the things I would acquire, my mentor sat down with me and asked, “So, what portion of that is yours?” I smiled and said, “All of it baby….” Thinking that was the truth. She quietly asked me again, “No, really, what portion of this is yours – not for rent, clothing, fun, but just for you?” I replied, “Um… if you take those things away, what’s left?” Which was exactly her point – before I paid for anything else, food, shelter clothing or fun, I needed to allocate a certain amount of my weekly pay and literally pay myself first.
This was my first introduction to the concept of paying myself first, and while I didn’t really get it right away, over time I began to truly embrace the power that this simple system could generate.
Why Pay Yourself First
By putting yourself at the front of the line of money due, you make saving a priority and create an empowering action around your relationship with money. Instead of seeing resentment for bills and obligations, you immediately start with gratitude that there is money going to savings and investing for yourself.
The real world practical benefit is that you are building up reserves for your life and the things that are sometimes urgent and always important – from hot water heaters to down payments on homes.
How Do You Pay Yourself First
I often say to groups, “Save early, safe often and save automatically.” Translated – start now, start weekly and have it automatically deducted; out of sight, out of mind.
• If you work inside a company, take advantage of whatever group retirement plan is available. Many times there is some type of a company match that can really add to what you contribute. Even if it is 2 or 3 percent of your income, every little bit will add up.
• Do not discount those weekly contributions – while in the beginning you won’t see how you’ll ever retire or have the home of your dreams, even the smallest of beginnings generates momentum.
• If you are looking for additional ways to do some long-term saving/investing, you may also want to consider a Roth IRA. And because your contributions are before tax, the power of compounding really makes your money work to grow, and this vehicle could become a significant part of your long term strategy.
• Finally, investigate where you can get the best rate on a high interest rate savings account. Sometimes the non-brick and mortar options like ING or Ally give a slightly higher rate that you can benefit from – remember to have these transfers happen automatically so you can watch your savings grow!
Where To Find The Money
I know that there is someone right now reading this thinking, “This all sounds great, except I have no money left over each month.” And to you, I will say, “Yes you do…..we just need to go find it.”
Most people who say that to me do not have a budget or spending plan that tracks all of their expenses and income. Having an “approximate” idea of where your money goes won’t work. You should measure what matters to you, from performance at work to your budget.
Saving and investing should matter, and you need to measure where it will come from and what you will do with it. I am certain that with just one week of tracking your expenses, we could find no less than $25 you could use to start paying yourself. Multiply that over a year and you can see small amounts do really add up!
Remember that even if you start small, your investments can grow quite large.
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