Pay Yourself First

The biggest factor that helped me build my savings, pay off debt, and start investing was paying myself first and then automating it (will cover this in another post). Paying yourself first means that before you pay rent, pay any bills, buy groceries, etc, you set aside a small portion of your money to save or invest.

I set up automatic deposits from my checking account to my savings account. It used to be $20/month, then $20/week and so on. Once I had my emergency savings in a good spot, I decreased the deposit amount into my savings and set up another automatic deposit to an investment account.

In his book¬†Rich Dad Poor Dad, Robert Kiyosaki made the distinction that the “rich dad” paid himself first but his dad, “Poor Dad”, used the opposite approach. The poor dad paid everyone else before paying himself.

Many of us can relate to the “Poor Dad”. The way most people manage their finances is to get a paycheck, pay their bills,¬†make some personal purchases, and hopefully if there’s any money left, put it into savings. Paying yourself is the opposite approach. Get the paycheck, deposit a portion of it into a savings/investment account and then you pay bills, make any necessary purchases, etc.

Worried about not having enough money to pay rent and bills if you pay yourself first? This is where planning/budgeting is crucial to your success. Go through your income and expenses to work out how much you can start paying yourself. Are there unnecessary items you purchase on a monthly basis? Can you cut down on take out/eating out and cook a couple more times at home and pack lunch on some days? Do you really need another pair of Jordans? Many of you may barely make the payments on your bills and think it’s not possible to pay yourself first. It’s possible! But it take sacrifice and diligence. Start small (I started with $20 dollars a month) and keep at it.