Really? That’s what I would be asking myself as well. Is he really writing about paying yourself first? Yes unfortunately I am.
This is by far the simplest piece of financial advice anywhere. Pay yourself first. It’s really not complicated, it is exactly what it sounds like, pay yourself first. I think I have belabored the point, but a lot of people miss it. I have been reading financial articles in newspapers, magazines, blogs and books for quite a while now and this statement is by far the most common thing that I have read. I assume that it is part of establishing yourself as a financial writer (hence the reason I’m writing about it first).
The real question becomes, what does pay yourself first really mean? It does not mean that if you run a company you should pay yourself first and then if there is money left pay your employees. It does not mean go out and buy a bunch of new gadgets and toys when you get paid. It simply means before paying your bills, before paying your mortgage, before buying that new X, Y or Z put some of the money that you’ve worked hard for into savings or some sort of investment vehicle (stocks, bonds, cds, mutual funds, ETFs, 401k, 403b, IRA, Roth, etc).
Most people don’t pay themselves first, they get their monthly paycheck and they pay the bank (mortgage), they pay Visa, Mastercard or Discover, they pay electric, cable, and on down the line. After paying all the bills they say well I want to spend some of this money because I’ve earned it and I want to reward myself and by the end of the month there is nothing left to save, invest or use in an emergency. By doing what everyone says to do and paying yourself first you make sure that you’ve saved something before doing everything else.
There are many ways to pay yourself first and most of them are extremely simple. Here are a couple ideas:
- Take advantage of 401Ks, 403Bs, or IRAs when you can. Most employers provide these accounts now and the money is taken directly out of your paycheck, before you get it. You don’t have to think about it, plan for it, or do anything other than set it up and let your money grow.
- Most banks will allow you to set up automatic monthly transfers or transfers whenever your check is deposited. Set up a secondary savings account and every time your receive your paycheck have the bank transfer $20, $50, $100 (whatever number doesn’t keep you from paying your bills) into the new savings account. After it is set up, pretend like you can’t use that money for anything.
- Fill in the blank, there are countless ways to pay yourself first, be creative and have some fun with it, if you can.
I wish you the best of luck with paying yourself first! Feel free to leave ideas or comments.