In a society where using credit to acquire an item is routine, it’s easy to buy almost anything you want with a tap or swipe of a card. Let’s face it, the United States economy heavily functions by the use of credit. You spend, spend, spend until there is $0 left in your account, or sometimes even negative, which you get yourself in debt.
There is a simple solution but a complicated mindset that many individuals cannot comprehend that would change their financial life forever. And that is to Pay Yourself First!
What does paying yourself first even mean? When I learned this concept in my early years, I was guilty and felt like I cheated myself. Paying yourself first means that each time you get a paycheck, you automatically put a certain amount that is yours to the side.
You must think of yourself as an employee or a business that you need to pay. For example, out of the $5000 you earn monthly, you are paying the government 20%-30% of your salary a month. You are left with $3500 a month, the next step is to pay yourself $500 a month so your total net-worth grows as every month goes by.
What should I do to start paying myself?
The first simple step you should do is to automate your paycheck from when it hits your checking account and move it to your savings or investment account so you avoid trying to spend it. Try to start small and if you don’t notice a lifestyle change, you can increase it in small increments. Why is the automation portion so important?
Think about it, when your taxes are being taken out of your paycheck, are you manually paying the government every time a paycheck comes in, or does the government automatically take it from you? You want to have the same mentality with paying yourself first, that money isn’t reachable and it goes straight to your savings or brokerage account. When that portion of your money isn’t available to you, then you won’t spend it on things you do not need. In addition, many employers use payroll programs that allow you to automate your direct deposits in percentages to certain accounts, so you never really see it. A prime example of this is a 401(k). Click here if you want to learn which 401(k) is right for you.