Last week I talked about, “What is Wealth?” in my MoneyMaestra Wise Wednesdays blog post. As the post explored, wealth is definitely not just about money- it is about so much more. Yet, money, and your relationship with money, is a part of wealth. So, in today’s blog post, let’s explore what paying yourself first means.
In order to grow your money, you must pay yourself. By paying yourself, I don’t mean receiving your monthly income; I mean putting money into your emergency fund, investments, and savings. If you are not growing your money and creating a security net for yourself, you will not become wealthy, in the monetary sense, or become financially free.
One of the many reasons a monthly budget is necessary for financial organization is so you know what you bring in every month and what you pay out- and to whom. Many people don’t allocate a monthly “expense” to themselves and therefore don’t make paying themselves a habit. In my monthly zero-balance budget, I have “expenses” to myself called emergency fund, investment, 529 (the account for my son’s college fund), and at times a special savings expense such as vacation fund. When I work my budget, it includes transferring money into these “expenses.” I have a regular amount that I initially put as my monthly expense in the above-mentioned categories, based on my expected income. If I have additional income in any given month, I will increase these “expenses” to myself because that is how I grow my money and continue to create a wider security net for myself.
You do have to pay your necessary living expenses, such as mortgage or rent, electricity, food, health insurance, car loan, etc. but once you allocate money to pay your necessary living expenses, paying yourself is a priority. (Remember you must also pay your debts such as various loans and credit card bills- there will be future blog posts on managing, reducing, and ridding yourself of debt) Paying yourself comes before paying discretionary expenses, let me explain further…
My necessary living expenses appear at the top of my budget, along with a charitable expense because I allocate giving as a priority in my budget (On a later date, I will do a separate blog post on giving and why I believe giving contributes to overall wealth), and then next in my budget comes paying myself. I want paying myself to come before my discretionary expenses, because if I can’t afford to put money in my emergency and investment account monthly, then I certainly can’t afford that new dress. Basically, I am putting growing my wealth and financial security above my immediate desire for a new dress, that I certainly don’t need, even if I really want it. Once you begin to do this regularly and it becomes a habit, you become much more aware and discerning about what you buy and why you buy it. As you see your emergency fund and investments grow, it becomes very empowering and freeing. If you can afford the dress and you want it- I am not saying don’t buy it or stop shopping all together- I am just saying paying yourself first and working towards financial freedom beats that new dress any day.
Sincerely,
Susan, the MoneyMaestra
Very wise advice! It’s these micro-steps, done consistently, that makes a huge difference in your life.
First of all, love the name, it suits you! We can all gain so much from your wealth (pun intended 😉) of financial wisdom!! This is such an important topic, I love your heart to want to help people do and be better in this area! ❤️👏
Alanna, thank you! I think it suits me too:) You know how passionate I am about the subject of Financial Literacy and Financial Responsibility-which ultimately creates Financial Freedom. Please stay tuned- lots more of Fun Finance topics to come!
Thank you Grace! It is the micro-steps, done consistently, that then create the good money habits. Financial Responsibility is a practice with wonderful benefits.
This is wise advice. I’ve lived most of my life paycheck to paycheck. I’ve recently started putting money in my savings account and watching the balance grow is definitely a good feeling! With Covid 19, and a reduction in salary, I am so grateful I have that money as a cushion if needed.
Cheryl,
Thank you for sharing that-many people live paycheck to paycheck and it is not a comfortable way to manage money for many reasons-one big reason being when an emergency, like Covid-19, arrives there is no savings to fall back on. You are now experiencing the joy and security of paying yourself first!
Excellent strategy!
Mary,
Thank you! It worked for me:)
Great advice! We don’t think about paying ourselves once we get our paycheck, that’s not what we are taught. It’s the paradigm shift we need to make progress with changing our old habits.
Deena,
Thank you! Yes, we need to make a paradigm shift- great way to express it. Once we start to control our purchase impulses and old behaviors about buying material things (that we often don’t need and many times don’t even really want after they are bought) we create a shift in our relationship with money. You will become much more discerning and aware about what you are buying and why you are buying it. So glad you are enjoying my blog.
Great advice! Sometimes those shopping trips feel like treats but that is not the same as paying myself. It is treating myself. The treat is momentary and investing in myself has long-term benefits. I like the imagery that you use with regard to purchasing something I may want but do not need. I want to feel/be financially secure more than I want that new dress. Great reminder!
Thank you Karyn! Yes, a treat such as a dress usually feels temporarily good- kind of a mini-rush but then buyer’s remorse often sets in afterwards if the dress was not in budget. Investing in yourself has wonderful long-term benefits- it helps your create the life you choose- long after the dress is just a memory.
I agree with you 100%. Even if its not a lot you still need to pay yourself. I recently received a pay increase and decided to put it into my payroll deduction for my 401k. Helping me to help myself for the future.
Debbie,
Exactly, just start paying yourself- it may be a small amount at first but it becomes exciting to see your money grow and the amount will increase as it becomes a habit. Excellent choice on the putting your raise directly into into your 401K through payroll deduction. You already know you can live on your previous pay, so putting your newly earned raise into your retirement savings before you experience having the money in your pocket is the way to do it! By making it a payroll deduction- it is automatically done, so no second thoughts. This is one of the primary ways I built my wealth- when I received a raise I increased my retirement investments through payroll deduction.
You always give the best advice, Susan! Thank you for this reminder to pay myself. This week it might only be $5 but I’m doing it anyway!
Lama Karma Chotso, thank you and yes, $5 is better than no dollars- do it anyway! Once it becomes a habit to pay yourself, you get creative and find more ways to cut expenses and put more money into savings and investments.
Great advice on the importance of putting money aside. You are an excellent example of how to live a life of financial freedom. I have learned so much from you and look forward to attending your financial literacy workshops in the future.
Thank you Claudia. You are an excellent fitness instructor and just like our bodies need to be fit, our finances need to be fit. I look forward to having you attend my upcoming workshops.
Well said, Susan helped me set up my budget and it was eye opening. It’s definitely a step everyone should take. Great blog!!!
Thank you Gloria. Setting up a budget is eye opening and as you now know- that is a really good thing! A budget is so important- it is the base for all the other steps.