Always Pay Yourself First

When it comes to personal finances, one of the greatest rules that are highly recommended is the rule of paying yourself first.

This is a hard to do, you will agree with me on that. I mean the money could be used to get you going on some bill or some fancy flat screen TV that you have been eying for a while. I think you do get my drift. Personal, before I got the hang of it, I would it in a month or two and just like that, the new habit I was trying to create is out of the window. This is even harder when the payday comes and your money ends up at some other place that you cannot even account for.

What does Pay Yourself First mean?

This generally means that before the rent/mortgage, lighting bills and any other bill, even before you get yourself foo, a certain percentage goes to your retirement, investments and your savings accounts. This means the first bill to pay should be you. By doing this, you are setting yourself for success in wealth creation

Why do you need to pay yourself first?

You have just got your first employment gig, moved out of your parents’ house and you are looking to take the world head-on, savings can seem like such a daunting task. I mean in between in between rent/mortgage payments, car loan repayment, grocery shopping and maybe some student loans you had acquired, the saving might seem like such an uphill task.  Then you look at your paycheck, “I mean I want to save but I don’t have enough money to even cover me until the end of the month”.

The major problem we all face me included is that we save what is left after we spend but that should not be the case. Instead, you need to cultivate the habit of saving first and spending what is left.

I am a huge advocator of the Power of Now. When it comes to savings, don’t say I will start next week or next month. 

Start now. Trust me; we all have reasons as to why we can’t start saving now. I mean, I don’t have dental insurance and my tooth hurts like crazy, so, I will spend what I have now on the dentist. Don’t forget about that trip you really want to go to down cost on the next Mashujaa day with you girls. Even the “little” that I am making is not enough to pay my bills.

Three reasons you need to know why you need to start saving now instead of next week, month or year?

•    You are a priority: before anyone else came, that is the landlord, Safaricom, KPLC, you are the first in your life. Having savings is a very strong motivator and it gives you power.
•     Remember the financial habits we talk about? Saving first will enable you to create good financial habits. What order do you follow: Bills, fun, saving or Savings, Bill, fun? Category 1 nor so much is left to save at bank is there? Category 2, you have been able to set your money aside and now you can be able to discern your spending.

• ·     You will be prepared for emergencies that will require money. You are building yourself a buffer to face the world. With regular savings, you will have a good enough nest egg that can handle any emergencies that come your way. I mean you can save money for your house, save up for retirement. This gives you Freedom-and what does freedom do? Opens you to a world full of possibilities.

How can you Pay Yourself First?

To develop saving habits, you will need to make the process as friendly as possible. Don’t go all mean and stingy on yourself.

I believe is Automation. Make sure before you open that checking account, the first thing first, savings, retirement, vacation money has been deducted from your account. Make the money seem invisible to you. You cannot spend what you don’t see now, can you?

Some portion of your saving will definitely include retirement and then there is that part that includes your more medium and short-term goals such as getting a house, wedding and honeymoon, getting a new car just to mention a few. 

How can you be able to do this?

• ·    If your employer does offer some retirement plan enrol as quickly as possible and match it up as well. This is generally like free money. Take advantage of it.

• ·   Start an investment account that gives you returns in the compounded form. This will enable you to build your wealth.

• ·     Open a high-interest savings account and set up automatic transfers/standing order to it. Make sure this form part of your financial obligations. This is the first and most important bill of all every single month.

 How can you overcome the saving challenge?

Savings like any other habit can be a bit difficult to master. Unlike, personal development habits where you can create a habit within 30 days or repeatedly doing the same thing or getting better at something using the 10,000 rule to becoming an expert in your field, you will need a total mind makeover.

Most people do believe that savings are very difficult but in all sense, anyone can save at least 1% of their income.  You might look at it and think, but 1% is so little it does not even add value, but to the person who is sceptical, this is the most painless way of saving. Then after that, the sceptic might think, maybe 3% or 7% is something to consider. Before you know it, your savings will have increased.

At times you might still struggle to save the money, however, do consider using your raise to save for your retirement as well as save. When you reach the maximum of both retirement and savings, then you can consider using the raises on yourself again. Yes, your salary might stagnate for a few years but still, you will be developing the saving culture.

Final Note

No matter what age you are or what level of life you are at, make savings a habit as this will increase your financial security in future. In a few years time, you will look at yourself you will give yourself a big thank you for having started to save. 

Remember it is never too late.