There was a book written in 1926, called The Richest Man in Babylon – it is one of my favorite financial books of all time. The first principle discovered in this book is “A part of all you earn must be yours to keep.” The gentlemen in this book learned that by first putting aside 10% of his earnings and making that money unavailable for expenses he would be able to see this amount build over time and in turn it would start earning money on its own. This is one of the best financial principles I have seen produce huge results in my own life, and it is the Pay Yourself First Principle. This could be some of the simplest yet most powerful advice you will ever learn when it comes to financial management. What this principle means is that whenever you receive a paycheck, salary, bonus, or any other type of compensation for services rendered you should set money aside for savings/investing before paying any bills, purchasing anything or any other type of spending. As simple as this principle is, most people struggle to implement it. The reason they struggle is that most people want a get rich quick plan. They want the boats, the nice cars and the big houses. This principle teaches you self-discipline, patience, and the importance of planning for your future. If you do not implement this strategy into your financial practices the odds are very small that you will ever build wealth. Living in modern day times we are able to implement this principle with less hassle than any previous generation. Since most employers have payroll systems that deposit checks directly into our bank accounts, we have the ability to choose what goes where. Some systems have more capabilities than others. At our company we previously had a system that could only send it to one account, but with a system we setup several years ago we now can transfer funds directly into ten different accounts (probably 99.9% of people do not have this many accounts). This makes it easy if you have a savings account, fixed expense account and a checking account and need a specific amount transferred to each one. Financial advisors have shown for years that if you do not set something up that is automatic the chances of getting started diminishes greatly! The point here is that paying yourself first has never been easier. The key to seeing this principle take hold in your life is to have the self-discipline to get started with saving today. Quotes on Paying Yourself First Warren Buffett says, “Don’t save what’s left after spending, spend what’s left after saving.” Dave Ramsey says, “Saving must become a priority not just a thought, pay yourself first.” Chinkee Tan says, “Don’t miss a single payday without setting aside money for your savings.” Abraham Lincoln says, “Prosperity is the fruit of saving money.” Robert Kiosaki says, “Rule #1 is pay yourself first.” Principle Basis – Self Discipline Paying yourself first comes down to one thing self-discipline. We all have bills and we all have places our money needs to go, but if you don’t make it a priority to invest and save for our future, you are sacrificing tomorrow for today. A mentor of mine would tell me, “Do the things you need to do when you need to do them and there will come a time you can do the things you want to do when you want to do them.” In life we have choices every day. Choices that can create sacrifice today for a greater future. Putting saving as a priority is a must for a brighter financial future. Think about it from a physical/exercise perspective. If you always tell yourself that you don’t have time to work out you never will, and you will probably always struggle with your weight or potentially health conditions. However, if you make time to get up a little earlier or decide to take that jog after work before you eat dinner you will reap the benefits for years to come. Investing is the same way, we all would like to spend every penny we make plus a little more, but this is not the way we setup a better tomorrow for ourselves or our families. How do you eat an elephant? One bite at a time. That is the same way you start to save for your future – one paycheck at a time. However, putting it off is a sure way to know you are hurting your future. How Much Should I Pay Myself? After you make the decision to start saving for future before you worry about everything else, you will need to decide how much to pay yourself. A good foundation starts with 10%, but if you do not have that ability start with whatever amount you can. However, it is a good goal to get to where you can save 15% of your income for retirement. The amount if you are just getting started is not as important as the action. Your goal is to build smart financial processes into your life so that can see financial success. Ask any millionaire that was not a trust fund baby and they will tell you that it is the little actions that you take over and over again that build the habits you need to reach success. In my personal financial group, I can tell you that in ten years of following this principle most of the men in my group are saving 10-20x what they were originally saving when they started out. If you are in a situation where your bills are more than your income and you have cut all the fat out of your budget, you should consider getting a side/second job, or some type of alternate income to help you speed up the process to being in a position of a positive cash flow. If you are in this situation, let me tell you that you are on the right path. You are trying to learn how to get out of your current situation in hopes of a better tomorrow. I, like many others, have been in your shoes and with consistent focus you will get out from under the pile of expenses. It usually doesn’t happen overnight, but you will get there. Steps to Plan for Your Future Start Today. If you wait and say you will do it next week or next month, odds are you never will. Get a plan together right now so you can figure out the best way to start saving. Evaluate your pay. How often do you get paid? Is your pay direct deposited into your account? Do you have the ability to send money to more than one account? The key here is to know how you can try to automate savings. If your payroll system only allows you to pay to one account or if you are still paid with a paper check, figure out how you can move that money to a separate account. One way to do this is setup an automated payment out of your checking account into another account so that it becomes something that happens regardless of your remembering to do so. Retirement Account. This is another method that is different than moving to a normal savings account. If your employer has sponsored a 401k, 403b, or another retirement account this will allow you to save money pre-tax that can be invested in multiple investments. Most financial advisors will tell you that after you have setup an emergency fund, paid off “bad debt”, and have a six-month emergency fund that this is the route you should take. I tend to agree with this method as well, but everyone’s situation is different, so this is not universal advice, but it does fit for most people. Another good thing about this option is that the money never hits your savings account, so you don’t feel like you are missing the money. Anytime there is not the pain of feeling like you are not receiving your money it helps make the process much easier. How Should I Invest At first it is more important that you start investing than the actual investments you are putting your money into. If you only have $100 in a savings account it will not add up to a whole lot even if you doubled your money, but if you start putting $100 a week into savings you will have $5,200 by the end of the year. That is the power of paying yourself first. Once your account has started to accumulate some value you need to begin learning more about investing. You can learn a lot from reading books, but if you do not feel comfortable investing your hard-earned money, hire a financial advisor who is qualified. Make sure you choose an advisor who wins when you win. I have never liked the advisor strategy that allows them to make money even when you lose. You don’t keep a professional coach when they are consistently losing, why would you pay a financial advisor that is consistently losing. With that said, understand that there are down years in the market – we don’t win every year or there would be a lot more millionaires. Pay yourself first and live off the remainder. In your journey to financial freedom and a better tomorrow the principle of paying yourself first will help you gain more momentum than probably anything else. The reason why is it forces you to have discipline with your finances. In life we typically never see lasting change without self-discipline, and that isn’t just with finances but with every area of our life. Get started today and give up your excuses!