One of the best advice that I’ve read in a few personal finance books is to pay yourself first before you pay others. The others here would mean the banks where you took up your housing and car loans from, your credit card bills, etc.
For most people (myself included), the first thing they do when salary is in would be to pay for all their monthly commitments. Whatever cash that’s left would be the money they have left to spend. For those who regularly put aside money as savings, a portion of this “leftover” money will then be saved.
The suggested method of paying yourself first would be to do it the other way around. Save up a portion of your take home pay, pay your bills and you can spend the remaining on whatever you need. Note that it is supposed to be in that particular order.
Since I read Robert Kiyosaki’s Rich Dad, Poor Dad, I started to practise this. It may not be easy initially because you may fear that you may not have enough for bills and other expenses once you’ve taken out a portion of your nett pay. Don’t worry, do it slowly if that’s the case. Start off with taking a small amount to be put aside. Once you find that you have excess money for the month, then you can start setting aside more the following month. That’s what I did when I started.
I fix a minimum amount to set aside, but not a maximum. Sometimes, when I find that I have some spare in the bank account, I would quickly transfer a little more towards my “Pay Me First” account. The reason I do this is because I don’t want to be tempted to spend knowing that I have a little extra. I made a rule not to withdraw cash from my “Pay Me First” account unless it is for investment purposes.
If you intend to save up some money for personal indulgences like going on a holiday, buying a fancy new laptop, downpayment for a second car, etc, saving money this way would also help you achieve your goal faster. You just need to be diligent at making sure you pay yourself first each month no matter what. If you have the use of an internet banking account, use the monthly recurring transfer function to pay yourself a fixed amount. That way, you will never forget about paying yourself first, saves you the hassle of going to the banks, and your savings towards your goals will come around sooner than you think.
So if you are not already doing this, you should. After all, your hard-earned money should go to you first before the banks take them all away.
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Well said? Great information, keep up the great work!
Hi Susan. Thanks for dropping by. I’ve enjoyed reading your site and have added you in my links. Do link me up too if appropriate