Pay Yourself First – The key to financial stability and financial freedom
“Pay yourself first” says nearly every budgeting coach, financial adviser and personal finance guru. Is this just some jibber jabber or do they have a point? My opinion is that they are absolutely right.
What do you do? Is a popular conversation starter and we often respond with… “I am an account manager with some big corporation” or “I am the CEO for company x” or “I am a garbage man”. This line is very common because we think that we can pinpoint someone´s social status. What if you answered something different like… “I am an investor in company x and y and z”. Let them guess what your social status is now, even if you are a low wage garbage man.
The point is: Who do you work for?
You are not working to make your employer rich. You work for YOU. Everyone works for him- or herself. In a sense, we are all self-employed and all we care about is our own bottom line. Let´s mind our own business without owning a business (and if you do, great). We can all be workers but we can also all be workers and investors. So what is your business?
So you work for you, now you need to make sure some of your hardearned cash is yours to keep. Most of us have some month left at the end of our money so we need to flip this upside down and make sure there is some money left at the end of the month. That´s why at least once a month or with every paycheck you are going to…
Pay yourself first
“Oh no, I can´t do that, I have bills to pay” is how most people respond to this. We all have bills to pay but I challenge you right now to start saving 1$ a day or 1€ a day or whatever currency you are beeing paid in. If you get paid once a month, shedule it. Put it in your calendar or even better: see if you can automaticaly transfer 30$ a month the day or the day after you get your paycheck to a separate account. This is your “get rich” account. If this amount is to high find ways to reduce your living expenses.
Use the money you put aside wisely. First and foremost fund an emergency account. I am not talking about a huge amount here to be able cover 6 months of living expenses in case you lose your job (If you like this idea, great go for it). I am talking about a cash reserve about 500-2500$ just in case your car breaks down or just in case you have an unexpected expense and no other way to pay for it.
Once you have done that… start investing and start growing your investment account. Talk to your bank or financial advisor. Do it yourself only if you are confident in your investment skills and are properly educated.
How much do I need to pay myself first?
The answer to this question depends on your own financial goals and needs. Most financial advisors and personal finance guru´s say you should put aside 10 percent or more of your income. The most important thing is that you do it, even just a small amount. Get into a habit and slowly raise the amount you can put aside.