Pay Yourself First
Image from Envato Elements
In the process of writing for this blog, I often find myself thinking about the ideas and concepts that changed money for me. The truth is I could hit you over the head with all the “facts” and all the “data”, but in reality, you don’t need that.
Don’t believe me? Then answer this question: “how do you live a healthy life?”
Chances are, you’ll give me 2 or 3 “correct” answers. We should eat a little better, we should probably workout and move our bodies more; probably should minimize how much processed foods we eat. All great answers, and yet, obesity is one of the leading epidemics globally.
We have the facts and the data, we even know how to generally solve for it, but action is missing.
I think the same can be said for a lot of money concepts. We generally know the “correct” things to do. We should probably spend less, save more, have an emergency fund, invest for retirement, but action is missing.
When you first start learning about money it can be overwhelming. There’s so much to learn that you’ll soon realize you don’t know a whole lot. That, in turn, could have you stuck in analysis paralysis stressed about what money move to make first. So let’s talk about one of the first action steps that helped me feel like I was actually making progress.
Paying Yourself First
The concept of "paying yourself first" means prioritizing saving or investing a portion of your income before spending on anything else.
You are your number 1 priority.
Thus, you need to financially take care of yourself before you pay bills, get food, or engage in entertainment. I know that sounds crazy, and you’re going to be like “well if I don’t have a roof over my head, then it’s a moot point”. That’s not what I’m talking about. I get that you have to pay your rent, but you have to have a mentality shift that puts you first.
When you make it a priority to focus on your financial future, things become clearer. Paying yourself first is a simple concept, but it’s not always easy. If it was, more people would be doing it, and the consistency and discipline of this approach would set them up for a lifetime of financial security and flexibility.
What did it do for me?
Buildt A Savings Habit: I had never considered myself “a saver”. I remember hearing people saying “well I have 20K, 30K saved” and I didn’t understand how they could actually save that much money, especially if I knew they weren’t making a ton of it. What I didn’t realize was they’d built a savings habit. They always made room to save. When you pay yourself first, when you make no excuses and decide that nothing gets in the way of prioritizing yourself, you leave room for a lot of money to grow.
Forced Focus: One of the biggest issues I had when I first started figuring out my money life was that I was allover the place. I was trying to save an emergency fund, get out of debt, invest in Bitcoin, buy a house. It was too much, too quickly. Paying yourself first allows you to focus on just one thing. Just move that money out to a savings or investment account. That’s all it needs to do. Having focused intention when dealing with money is a game changer.
Lessened Lifestyle Inflation: In today’s time, spending more than you earn is nearly easier than breathing. Browsers remembering your cards, paying with your phone or your watch; it’s insane how quickly you can spend money without a second thought. One of the hedges against that is by moving that money out immediately. You learn to live with less right off the bat because you are not allowed to spend this money that you’ve prioritized for you and your future self.
How Do You Do It? And How Much?
Two words: Automatic Transfers.
Image from Envato Elements
This is by far the one habit that I will recommend to anyone who wants to make changes in their money life. When I talk about action, this is what I mean.
If you don’t have one already, setup a high yield savings account in a different bank from your everyday checking account. Then, set up a transfer from your checking account to that savings account for every time your paycheck hits to move some money over.
If you get paid every other Friday, then set up the transfer to happen the next Monday (so that the money clears) and transfer a percentage or a set amount to the savings account. Once that’s set up, leave it alone until you’re ready to increase the contribution.
Now, the classic recommendation is to save 10-20% of your income, personally I believe this number needs to be more like 15 - 30%, but the exact amount depends on your current financial goals, debts, and monthly expenses.
If you’re just starting out, though, focus on building the habit by saving a small amount and then gradually increasing it. Don’t be too concerned just yet about how much you’re moving.
