Pay Yourself First (continued)

The easiest way is to have this done automatically. Have the bank save the money right off the top for you and don’t even involve yourself. You already know how much you want to save in the year, so if you’re paid monthly, then divide that by 12, and if it’s every 2 weeks then divide that by 26.

Then, either online or by visiting your bank (depending on how they do things) just have them set up a transfer effective the day after payday into your new account(s) - which we’ll get to….

Make sure it’s the day after payday so that the money has arrived (from wherever you get it) but you haven’t had much chance to spend any. Leave it too late in the month, and you may not have enough left. Do it early in the month and you may not even miss it!

Of course this assumes that you’re paid regularly and that it goes to a bank account in your name. If not, you may need to figure out a way round that - but the principle remains the same. About 10% of your regular income is put aside each time you get it.

Where does it go? Well the idea is that you set it aside in the bank where you won’t touch it. You also want to try and ensure that you’re getting some sort of interest paid on the money you save too - so that may mean looking around for different account types or even different banks. If you’re going to have to do this, don’t restrict yourself to the high-street, there are some good online banks as well. ‘ING direct’ comes to mind as one online option (No, I don’t use them, they just advertise well in my area).

So, put 10% of your income into an interest-bearing account and don’t touch it. Easy huh? More on that next time…..

Why pay yourself first?

So last time we talked about paying yourself first. Did you come up with a list of reasons to save money and become richer? Here are some of mine:

• Spend more time with family
• To chose to work (instead of having to)
• To be able to visit favorite places more often
• To be able to give more away (to churches, charities, schools, etc.)
• To be free to spend more time learning.

Whatever you listed - and some of your list may be the same as mine, or may be very different - it’s likely that your list centers on the idea of freedom (to do something, be something, or NOT to have to do other things).

Now we have reasons to pay ourselves first, how do we achieve this? If you’re anything like me, most of your paycheck is gone by the time the next one comes along - and often it’s all gone.

Well, actually having the motivation to do so is a good starting point and is what the list is for. Next is the discipline to keep some of your money whenever you get it. That’s what the plan is for - if you’ve followed along so far, you already know:

How much (10% or one tenth of your income)

What for (the reasons listed above)

Next comes the ‘how’ part. How do you know how much is 10% and how do you keep it? Well, that will be the next discussion topic.

Pay Yourself First

Continuing with the Rich Dad Poor Dad: What the Rich Teach Their Kids About Money-That the Poor and the Middle Class Do Not!
theme - another topic that Kiyosaki feels strongly about is the idea “Pay Yourself First”. He may not have been the first to think of this - and cites The Richest Man in Babylon: Now Revised and Updated for the 21st Century as possibly the first book to put this idea in print - but he rightly gives is prominence, as does my current favourite Prosperity Consciousness: How to Tap Your Unlimited Wealth.

The idea is straight forward enough and a quick exercise will prove its worth:

1. Think of all the money you earned last year (what did you declare as ‘income’ on your tax return?)

2. Divide that number by 10

3. Imagine how much better off you would be if you managed to keep this amount for yourself each year.

Sound simple, but how do you do it? (Of course, you might already be doing it, in which case Congratulations! Now please share your secret with others using the comment box below....)

Well, there are probably various methods, but each one involves planning and having purpose. The number you calculated above sounds great, but what would you do with it if you had to spend it today? Not as a down-payment or to pay off part of the mortgage, but if you really had to spend it. Could you? Would you know what to do?

OK, we can all hit the shops and randomly spend money on whatever we see, but that doesn’t inspire us to keep the money in the first place: “I’m going to save it so I can visit the mall and spend it,” isn’t going to inspire you to set aside money each payday.

So what will?

Have a think about that question - what would inspire you to save the money? See if you can come up with a list.

We’ll talk more on this topic next time