In plenty of the finance books I read on investing and how to plan for financial freedom, they talk about the topic of paying yourself first. Today I want to talk about why it is so important for you to pay yourself first, and how you should be doing it
So, what do people mean by paying yourself first?
What Does It Mean to Pay Yourself First?
Paying yourself first means out of the money you are earning from your job, you are setting a portion of it aside in order to save and invest for the future.
The next question you may have, what do I invest it in? I know your first thought may be to invest it in that new Lambo, or that new 8K TV… nice try though. It means investing it in something that has the potential to make you more money down the line. For example in the stock market, a real estate investment or a business you wanted to start.
The reason why you would want to pay yourself first is to reach financial freedom so you do not have to spend the rest of your life working for money, instead money will be coming to you through these payments you made through yourself.
Cool, I hope you want to be financially free, so let’s look at how you can pay yourself first.
In the Richest Man In Babylon (a book on finance I will link to it right below here), the author talks about how important it is to put aside a minimum of 10% of what you make to pay yourself first. Now 10% is ok if you are willing to wait a while to get to your goals. If you can do 20%, then you can get to financial freedom possibly even sooner. I suggest putting this money aside (in the largest amount possible where you are still comfortable financially) in a savings account until you are ready to invest in something.
Why this is so Important?
The fact is that most people dislike there jobs. They go to work dreading every second of it and make money solely so they can spend it all on cool stuff to play with outside of work. I have a question for you though: instead of spending it all on stuff that will not get you anywhere in the long term… shouldn’t you start spending money on something that can make you free of the thing that may be holding you back?
This is why I believe you should start to pay yourself first now, to take advantage of compound interest and start making your money work for you as soon as you can.