Do You Pay Yourself?
Have you ever heard the phrase “Pay Yourself First”?
The first time I heard this, I was 18 years old. My only focus at the time was trying to make enough money to party for the week. I was working at a grocery store part-time, and could barely afford rent. One of my party buddies was in his early 20’s, and we were having a heart-to-heart about the lack of booze money.
He said, “If you talk to any financial advisor they will tell you to pay yourself first”. The context was that he was saying to go ahead and buy the booze and worry about the bills later. Of course, I let the wise advice of my “elder” persuade me. I bought the booze.
Is that good or bad advice?…..Let’s dig in and find out!
Surprisingly, the truth is that he is half correct. The second part of his context, “worry about the bills later” is absolutely correct. You work your butt off every week for your paycheck. You should be able to use your money to benefit you. If you weren’t going to do that, why would you even go to work to get a paycheck?
The incorrect part is in the first part of the context, “buy the (fill in the blank)”. You see, paying yourself would imply that you are gaining something. When you trade money for products or services, its an even trade. What is that actually doing to put you ahead and benefit you? Nothing, and if you traded that money for booze like I did, you are actually putting yourself behind.
If you are living paycheck-to-paycheck, 100% of your income is dedicated to paying other people for goods and services. (Check out our What is Money article which concludes with how this happens.) You’re paying other people. You aren’t paying yourself first when you are buying consumable/comfort items.
So what do we mean when we say “pay yourself first”? We mean, take a portion of your income and put it into assets before you pay your bills and living expenses. We'll talk about what assets are in another article, but let’s just say for now that it is anything that will increase your net worth. The majority of people would call that a savings account. That’s a great start. When money is added to the savings account, it needs to stay within a closed loop of self-improvement under full control.
Again, set aside a portion of your take home pay and stick it in a savings account. Force yourself to do it by making it automatic through direct deposit. Start with 10% of take-home pay. Let’s be real… if you find it impossible to pay yourself 10% of the money you earn, you really need to get on a budget and get focused.
If this is the case, contact us HERE to set up your free initial consultation. We will help you with your banking process setup, direct deposit allocations, and provide a plan to start paying yourself first; growing your net worth.
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