Paying yourself first

Written by Mike

Topics: Finance

One piece of advice you often hear finance pundits making is “paying yourself first”. I know Robert Kiyosaki repeated the phrase throughout his books, but I am not sure if he was the first one to come up with the phrase.

The idea is that you set aside a percentage of your salary every month automatically putting it into a separate account. I have no trouble with this, but I have trouble labelling it “paying yourself first”.

The first time I heard this, I thought it meant to spend money on what you want first and then pay your bills and creditors last. Is possible that other people read it this way?

Why don’t they just refer to it as “automatically saving 10 per cent of your salary every month”?

I would seem ludicrous if people were setting up some saving plan, if they were already carrying personal debt.

I think it is possible that finance gurus that appear on television telling people to pay themselves first are misleading people in finance education. The basic principle of personal finance is to spend less than you earn and invest the difference and I can’t see how they get “paying yourself first” from this.

3 Comments Comments For This Post I'd Love to Hear Yours!

  1. Tyler Weaver says:

    Pay yourself first, then with the difference you can decide whether you get to eat real food, or ramen for the month?

    I think if your responsible enough to not take out debt, paying yourself first is a good way to force living on less.

  2. Khyron says:

    I first saw this concept in “Wealth Without Risk” by Charles Givens. (No comments on the Givens Organization req’d; the book was still valuable.)

    The idea is forced savings, and forcing yourself to live within your means. Also, it is designed to prompt you to have money stashed away that you don’t touch (essentially, an emergency account). Yet the idea is also that if you have the money available to pay bills, large expenses, etc. you will be uplifted by this notion even if you don’t use the money for that purpose. Thus, the money is a financial security blanket.

    I don’t know if 10% is feasible for someone starting out or with a lot of debt, but putting away something is, while paying against the debt as well. The financial comfort and peace of having the funds available is huge; being able to watch the growth inspires you to add to it. As long as you don’t touch the money prematurely, that is.

  3. soundofgold says:

    I always understood this concept as keeping your living standards up to certain level ie. not forgeting to live a reasonably happy life while saving / investing – buy yourself (first) that book, movie, CD etc. which makes you happy yet fits within the “sanity” column of your budget.

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