Pay Yourself First

By Devin Scott Friday, August 13, 2010

Pay yourself first. This is a statement most small business owners have heard at least once. In the book The Automatic Millionaire, David Bach describes this as a requirement for anyone who would like to be financially successful. He goes on to explain why, how and even shows you how to make it automatic. He states, “People should take every opportunity they can to save money because it really adds up, and the best way I know to do that is to make your savings automatic.”

Paying yourself first allows the average person to save money that he/should would normally not be able to save. This money can be used to start a business, for retirement, to take a vacation, to pay for college, to help with an emergency or whatever your goals are. Typically, a person allocates his/her money in the following order: pay bills, have fun, then save. The problem with this order is that there is never any money left over to save. People excuse this with “I don’t have enough money”  or “I don’t earn enough.”  Bach states, “Change is a funny thing. Although most people say they want to change — so they can have a better life, with more love, more dreams, and more fun — the fact is that many of us are afraid of change.”  Paying yourself first allows you to save money without even knowing that you are missing it.  Per Bach, the easiest way is to make it automatic; that is, to have your bank deduct a percentage of your paycheck and deposit it into a savings account.

Paying yourself first means you will allocate funds in the correct order: you'll save, pay bills, and then have fun. It also means that you are making a personal commitment toward saving, and that you will save a percentage of your income no matter what. How much should you save? Bach answers the question this way: to be poor, don’t save anything; to be middle class, save at least 15% of your income; to be rich, save at least 25% of your income.  If you want more nuggets of financial wisdom, you can visit David Bach's website.

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