The concept of “paying yourself first” is heard but often misunderstood by many. The rationale is “this is all my money” so how do I pay myself? This is true! The money belongs to you. What is also true is everyone wants your money. Just as quickly as you receive your hard-earned cash, you are dishing it out to pay bills, make loan payments, and buy the daily necessities. Hence the concept of paying yourself was born. Before you hand over all your cash, pay yourself at least the first 10% of your pay cheque and pay living expenses with the remaining 90%. Pay yourself first is “what you save”. It’s for future use.
When money is out-of-sight, it’s also out-of-mind. What you can’t have, you can’t spend. This is why pension plans are effective. People who have pension plans put into practice “paying yourself first”. When they are eligible to contribute to their organization’s pension, a percentage is automatically deducted from their pay cheque. Small amounts of income trickled into savings plans over a long period of time will eventually pool into a large sum of cash. Since fewer pension plans exist today, savings is becoming a necessity for everyone.
The practice of saving can work for anyone. Discipline is the only requirement. Saving is a good habit to develop. If it’s not possible to save the full 10% now, start with a lower amount and continue working toward the goal of the full 10%. Once you pay off a loan or receive an increase in salary, immediately increase your contributions.
Putting yourself on “automatic” is the best way. In David Bach’s book, The Automatic Millionaire, “automatic” is used to mean setting up payments that are automatically transferred to a saving plan. How many ways can I say it? Right-on-the-spot, same-day-deduction, the-minute-your-money-hits-your-bank-account is the best, and for some the only, way to save. Get Smarter About Money also provides some methods to make it easier to save.
If you don’t pay yourself first, who will? Don’t cheat. Don’t rob your piggy bank of its savings. You do not know what the future holds but one thing is for certain, you will not be able to work forever. Secondly, you may not want to work forever. Saving small amounts of money as you earn it is not as difficult as trying to save larger amounts in a shorter time period. When you reach the end of your working career, you will be grateful you mastered the concept of “paying yourself first” because you will have a pool of cash to enjoy and support your dream lifestyle.