The Golden Rule - Pay Yourself First
If you want to have strong finances in five years
, ten years or twenty years from now, it's essential that you start following the golden rule today. That golden rule is to pay yourself first.
It's very easy to leave yourself out of your financial equation. Your landlord needs to get paid, your kids need to be fed and there's that new car you've always wanted.
Most people earn a paycheck and the money just seems to always disappear. Then after a decade or two they start to think about the need to have a retirement fund or a nest egg and panic, because they just don't have much money saved up.
Here's how to avoid that.
==> What Does it Mean to "Pay Yourself?"
Paying yourself means making yourself a priority. People are often willing to make the tax man, the boss, the kids or the mortgage lender the priority, but simply never make themselves important.
When you make yourself a priority, you make it an iron-clad rule to always pay yourself every month, even if times are tough.
The money you pay yourself goes towards your net worth. Your financial future. Your financial stability.
That means you're not spending that money. In other words, putting the money into a new car isn't what we're talking about. After all, that new car will depreciate in value by 30% when you drive off the lot and lose 70% of its value within the decade.
Instead, we're talking about investing in you future in a way that compounds. The money you save will help you earn more money, which will help you earn more money still. This will help you establish true security for yourself and your children.
Does that mean you should abandon your social responsibilities? Skip out on your rent so you can pay yourself?
Of course not. You still need to meet your social responsibilities; the only difference is you're making yourself a priority. You pay yourself first, before you spend your money on any non-essential expenses.
==> The Mechanics of Paying Yourself First
So how does one actually pay themselves first?
Start with 10%. 10% is a good start because it's a small enough amount that it won't be too hard to get started, while being large enough to make a significant financial impact in the long run.
Every month, take 10% of your paycheck and put it in a savings account. Never invest the money in anything more risky than double-A rated bonds. The money isn't to be gambled with - It's your financial backbone.
To ensure that you won't forget to take this 10% out of your paycheck, you can setup a direct deposit arrangement so 10% of your paycheck automatically goes to savings every month. Talk to your bank or employer to arrange this.
Saving 10% might seem like a hassle in the beginning and may not seem to make much of an impact.
by: Angel Noyal
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