Pay Yourself First is an expression I first came across in the wonderful little book The Richest Man In Babylon. It’s a simple concept but what does it mean in practice?
Let’s assume like many people you get paid monthly. Then there are a series of automated payments for mortgage or rent, household bills, subscriptions, credit cards and so on. Those payments dwindle the funds in your bank account and often you are left thinking I don’t know where it all goes.
You may have the intention to save or invest money but when the planned expenses are added to the unplanned expenses such as a big night out, a friend’s forgotten birthday or car breakdown, then all the money is gone and you are holding on for the next payday at the end of the month. No spare cash to invest or save and you can rinse and repeat for the foreseeable future.
Feels like a pretty grim reality when laid out like that but by paying your self first you take back a little control and proactively chose to build a brighter future.
Step one in the pay yourself first process is to automate your savings on the day you get paid. Don’t complicate things, open a savings account with your existing bank. Then set up a standing order for the day you get paid. How much will depend on your circumstances but even if its as little as £10 its good to start somewhere.
The difference between savings and investing were explored in another post which you can read at your leisure. Just begin, start the savings habit and don’t worry about interest rates or returns. When you have built a more sizeable sum is the time to look at investment options to make your money grow more quickly.
Why Pay Yourself First Works
When you make yourself a financial priority, you are subconsciously setting an intention to grow your wealth and then taking action on it. By saving even a modest amount, before you get a chance to spend it elsewhere, you will rarely notice the difference in your disposable income. This means that you are far more likely to achieve your savings goals than by leaving it to chance, perhaps later in the month, when physically the money has all been allocated elsewhere.
It will take less than 5 minutes to log into your bank account or online app, open a savings account and set up a standing order transfer. Do it now, you’ll thank me later!