10 Reasons WHY you should Pay Yourself First – and HOW

/10 Reasons WHY you should Pay Yourself First – and HOW

Pay Yourself FirstFinancial freedom is the result of doing specific things in a specific way. There is very little – if any – “luck” involved. Do the right things in the right way and the outcome becomes predictable. One of the secrets of the wealthy is that they pay themselves first. This means that when money arrives in their account, they make it a priority action to take some of that money and move it into an account where they cannot touch it, such as a savings or investment account. This principle or action is called: “Pay yourself first.” But what are the reasons you should pay yourself first, and, how do you do it. Many people also ask: “How much should I pay myself.”

(This specific article assumes you are currently employed (working for a salary) and have only one account with the bank, such as a current or cheque account.)

WHY you should pay yourself first:

  1. All wealthy people pay themselves first.
  2. When you pay yourself first, you learn that you are a priority receiver of your own money.
  3. Poor people spend all their money, then have nothing left to save.
  4. Wealthy people save (pay themselves) first, and then spend what they have left.
  5. You have worked for your money – you should be able to keep some for yourself.
  6. You want to get into the habit of seeing money grow in an account.
  7. It is very rewarding to see your money grow in an account.
  8. As your money increases, so does your confidence.
  9. It is one of the best ways to start making financial progress.
  10. It teaches your financial discipline.

HOW you should pay yourself first:

  • Go to the bank and open a second account. This account is ideally a savings or investment account which is designed with the intention that you mainly put money in, and seldom withdraw. Note that every bank and every account may incur monthly fees, and it is thus imperative that you speak to someone at the bank and ask for the most cost effective solution. Be sure that you clearly understand the costs and fees of this account.
  • Ask the person assisting you to link your primary account to your savings/investment account so that you can do transfers from your primary account into your savings/investment account via the internet or telephone banking from anywhere.
  • Also ask the bank to set your savings/ investment account up in such a way that you cannot make withdrawals unless you physically go into the bank. This will make it tougher for you to make withdrawals, but leave you room to withdraw in case of an emergency.
  • As soon as your salary arrives in your bank account, transfer money from your primary account into your savings or investment account.

HOW MUCH should I pay myself first?

  • The ideal formula is: Give away 10%, Put away 20%, Live of 70%. However, most people struggle to achieve this, especially when they are starting to learn about money. Start with 1% of your salary. For example: If your earn R10,000 per month, put away R100.
  • Once you find you can do that monthly, increase to 2%, then 3% and so on.

Some Tips to remember and apply:

  • Do this transaction as your first transaction every month, as soon as you have received your salary payment. This is the “Pay yourself first principle.”
  • This process is not the one that will make you instantly wealthy. This process is to help you learn the discipline of making payments to yourself.
  • Only deposit into this account.
  • Your savings/investment account is not an “emergency” fund. This account is only there to help you to become disciplined in saving regularly. Think of this account as an “I will never ever use this money” account.
  • We will discuss other options to make your money work even harder for you once you have managed to build up the equivalent of say 3-6months worth of salary.
  • Don’t focus on the amount you put away, focus on the principle – learning to save.
  • You can only proceed to investing once you have mastered this discipline of saving.

For more regular tips, visit the Facebook page or follow @christovanzyl on Twitter

Image courtesy of jannoon028 / FreeDigitalPhotos.net

By | 2013-08-01T09:33:20+00:00 August 30th, 2012|Money|1 Comment

About the Author:

With over 10 years of international speaking experience, Christo van Zyl is one of the finest qualified speakers available. His passion for people and unquenchable thirst for learning has literally taken him across the globe. His life goal is to “Change the way we learn." As a technology trainer, he has performed on-site training for Microsoft, Boeing and Chevron. Recent consulting projects included corporate clients like ABSA and Barclays. He has delivered his Secrets to Wealth to more than 10,000 people in 6 countries, and his Facebook page of the same name has a following of over 27,000 people.

One Comment

  1. Blue Petal♥ September 18, 2012 at 7:01 am - Reply

    Amen. And I was just thinking of doing this.

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