The golden rule of personal finance is to “pay yourself first”. But this can confuse people – if I’m not self employed, don’t I just get paid by my employer? How and why would I pay myself?
What it means
At it’s simplest pay yourself first means: Every payday, the very first thing you do is set aside a regular amount for future you. Before you pay any bills, rent or mortgage, go out for dinner or head to happy hour.
You should pay your own savings and investment accounts first.
Can’t I do that second?
Sorry, no – it’s a flat no. Why you ask? Because the most common reason people don’t save or don’t invest is that they run out of money by the end of their pay cycle. It’s so easy to do – live for today and continue to swim along pay check to pay check.
That’s why you need to pay yourself FIRST. Treat it like a bill – the most important “bill” you have, because it’s for your future. Having this mentality helps switch your desire to save or invest into a necessity.
As an example…
It’s kind of like going to the gym first thing in the morning or doing your hardest work task at the very start of your day. Planning to get these things done first maximises your chance of success – because you’re not interrupted by life. If you get to work and plan to do your hardest task at midday, all manner of meetings, calls and jobs can pop up before BAM! Its 5PM and home time. Similarly, paying all your bills and fun spending with a ‘plan’ to save what’s leftover…usually results in very little being leftover.
You see our point – you’ve got to do it first.
The philosophy of paying yourself first came from George Clason’s book, “The Richest Man in Babylon” which was written nearly a century ago. And its message still holds true today – despite how the world has changed. In fact, Nasdaq named it the number one proven way to save money.