Pay Myself First?

in LeoFinance4 months ago

Over the last few weeks I have been trying to sharpen my "financial mind." Human beings should be life-long learners, so we should continue to grow and develop our knowledge regarding money, finances, and investments as well.

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Something Keeps Standing Out


One of the common themes I keep seeing over and over is PAY YOURSELF FIRST. In principle, this idea makes a lot of sense. In practice, I think there are a variety of excuses why people will not pay themselves first.

They Don't Know How


Many people are functionally illiterate when it comes to finances. They are either uneducated or undereducated.

I think there are a couple of reasons why this is true:

  1. No one ever took the time to explain basic financial principles to the financially uneducated/undereducated person.
  2. If someone took the time, the speaker did not communicate the principles in a meaningful way so the listener could find daily application.

Without a strong financial foundation (the WHAT) and a short or long-term goal (the WHY), most people will not be able to successfully execute the HOW.

It is absurd to think that someone will pay himself first when he does not even understand how to balance a checkbook, use debt wisely, or develop balanced budget.

They Don't Want To


Delayed gratification is a dying art. I have been noticing a increasingly louder message from commercials. "You deserve it." "Get it NOW!"

People are not willing to pay themselves now (with the hope of a better future) because they prefer to spend, spend, spend instead of save and invest. There is a greater emphasis on the short-term versus the long-term.

Spending gives you a temporary dopamine boost, but that little high does not last long. In order to keep enjoying the same high, you have to keep spending more and more. Stop spending. Stop feeling good.

We don't like that. We want to enjoy the moment. We are told to enjoy the moment. And although I agree that we should live in the moment, sometimes we have to make a temporary sacrifice for a future return. The "I don't want to pay myself" people choose not to exercise financial discipline.

Paying Yourself Seems Selfish


On the other end of the spectrum, there are people who feel bad about "paying themselves." They avoid the "me first" mentality as well, but error on the side of trying to NOT look selfish.

They were taught that money is evil. Instead of using money as a tool, they avoid it (or at least using it in a way that might be perceived as excessive.

Many People Feel They Can't Pay Themselves First

I know that I lot of people choose not to pay themselves, but I have met many people (especially while living overseas) that lived in what I call a "hand-to-mouth" lifestyle.

The money earned for the day is immediately used to purchase and pay for other expenses that same day. This is a vicious cycle, especially for people who are also haunted with poor financial decisions.

One reason why people feel that they "can't" pay themselves is because they are thinking with a "set amount" mindset instead of a "percentage" mindset.

If I have a long-term goal of investing $10 a day, and I only make $10 a day, then I feel defeated before I even begin. On the other hand, if I plan on investing 10% of my income (very reasonable), and I make $10 a day, then I set aside $1 each day for investments. Now as my salary increases and I add other streams of income, once I reach $100 total earnings each day, then I will meet my investing goal.

I highly recommend that people think in terms of percentages when it comes to financial goals. Set a percentage for the following:

  • Investing for the future - Paying Yourself First
  • Savings
  • Spending for actual needs and bills
  • Discretionary spending - "fun money"

Depending on your short and long-term goals, you might have other categories as well.

I Want To Hear From You


Pay Yourself First! Easy to understand. Harder to apply.

I want to hear from you.

  1. Do you pay yourself first?
  2. If so, how do you pay yourself first?
  3. Do you struggle with any of the challenges described in this post?

Thanks for stopping by!

@SumatraNate

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In the states, this starts with putting money into a retirement account. It is amazing how many people do not do this even though there are tax advantages as well as often matching by companies.

Most people stay poor because they pay themselves last with what is left over. Obviously, they find, that due to their spending, nothing is left over.

Pay Yourself First is some of the best financial advice out there. Whether it is a retirement account or not, some money should be put aside out of each paycheck.

The key is to develop the habit. Once the habit becomes ingrained, saving becomes easy.

Of course, the second part to that is investing so that money is put to work.

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I am fortunate that the company I work for has a generous matching program. I don't want to leave free money on the table.

I am placing my funds in a ROTH account. Looking forward to enjoying tax free growth.

I completely agree about creating habits. The hard part is that we often have to tear down the bad habits (also ingrained) before we can build the new, improved ones.

I am teaching my kids that investing is using money to make money. It has to be put to work.

Do you pay yourself first?
If so, how do you pay yourself first?
Do you struggle with any of the challenges described in this post?

I do pay myself first, not with the savings side but I tend to treat myself every payday with something. I tend to save some money afterwards but rewarding yourself with something that you did not bought for several days etc. is worth it.

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I also enjoy the temporary joy of treating myself, but it is important to create good habits, especially setting moving aside for savings and investing. It is hard to do, but a good idea.

I hope you can continue to save.

Instant gratification is all over in this world, from sweets to drinks, facebook, fast food and porn and the large commercial companies know it. That's why they use highly powerful psychological phrases to lure people in becoming their clients and bury them into a never ending instant gratification vortex. It's human psychology and they know how to play it.
Great post by the way.

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It is why we are also falling behind in the historical technological curve.

People are building applications that can make them billionaires overnight as opposed to working onto something that is sustained for a long time.

We need people to put off that gratification and think long term about things.

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So true. Companies are playing the psychological game and they are defeating the average customer who is unaware of the rules.

I watched Social Dilemma on Netflix. It is scary how "content" is being pushed to get users to spend hours on any given platform and how it is being used to make behavioral modifications.

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I was having a conversation about this only yesterday with a friend. I explained to her how I saved 10% of all my children's "income" for them (100% when they were given gifts as babies) and then taught them to do the same.

As soon as they were old enough to understand that money bought things I put any money they got into small enough coins that I could demonstrate removing 10% and then giving them the remainder to do with as they wished.

When they were old enough, I helped them to open a new bank account for themselves and showed them how to add the 10%s.

They are now both adults and continue with this habit. My son was able to buy his first car from his 10% account athough for the most part he doesn't touch it. He sees it as for big purchases that take a long time to save for.

For more expensive stuff that couldn't be covered out of his salary easily he has another account that he saves another small percentage in.

When I was coaching I used to encourage all my clients to do this too. If they were really strapped then even just 5% made a big difference. I found it's not only about the money itself but, knowing you have something saved, even if it's only a little begins to change your attitude and you see yourself as more abundant.

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