Just think about the following:
- How many of us have very meager amount of money left with us at the end of every month.
- You had planned to save some money at the end of the money from your monthly income but then you are left wondering why there is too little to save in the end.
The above situations are very common. Almost half of India’s population will not be able to survive more than a month without any job or income, just with the help of savings or family support. Only 20% of Indians would be able to cover their living costs for just one week if they lost their job.
The good news is that you can very simply break this frustrating savings issue, BUT the question is HOW? The answer is simple, “PAY YOURSELF FIRST”.
Paying yourself first is a very popular jargon and simple strategy in personal finance. It means that the moment you receive your Salary and / or monthly Income, the first thing you do is to automatically transfer money into your planned investments, retirement fund, or other avenues that help you build wealth. This transfer of money is also called as “pay your future self first”.
The concept is a simple one: that money goes towards your financial goals first, before paying any monthly bills, debts, or using it for any spending.
Why pay yourself first?
There is inadequate money left with us after meeting all our regular mandatory expenses (food, transport, power, phone, rent/mortgage, debt, etc.). There never seems to be enough left to invest or save. That’s the reason “paying yourself first” is important. Most of us try to save money based on what is left after meeting our regular expenses, instead of a setting aside the savings first. It is inevitable that by moving to the pay yourself first, we have a much better chance to reach our goals. The key is to stick on to it when we see the progress.
Prioritize life
“The main thing is to keep the main thing the main thing” Stephen Covey, bestselling author of The 7 habits of highly effective people
This money management technique teaches us “prioritization’’ – our major life goals come first. When we take control over our money, and start taking small steps towards big goals, we’ll soon feel more confident and assured. This becomes a big motivator and we will no longer lumped into those dismal Indian statistics about money.
How to pay yourself first
It’s very simple: It can be done by giving bank mandates for automatic transfers from our regular bank account to our savings account where the money to be saved is to be transferred. Once sufficient cash buffer is accumulated for emergencies (e.g. at least 6 months expenses) we should consider investing into our financial goals.
However if we have high interest debt, like credit card bills etc. it’s always a good idea to repaying that first.
How realistic is this idea?
Most of us might worry that paying ourselves first means running out of money later. If we’re struggling to keep up with our current lifestyle then how can we afford to pay ourselves first?
The answer is simple: Just do it.
Even if we have to face difficulty in the payment of regular and mandatory expenses, so be it. This requires strong self-discipline to control ourselves money-wise. If we cannot control ourselves money-wise we cannot take control of our life. No matter how good our intentions are, if we don’t pay ourselves first, we will wind up putting ourselves last. No one wants a future lifestyle that’s paid for with leftover change – we want to live our best lives now and in the future and paying ourselves is a key in this regard.
The earlier we start paying ourselves the better financial life we’ll have. As we start to see our money grow, we’ll naturally become more motivated to pay ourselves more, or at least get comfortable with the idea of gradual increases!