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.
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