From Rags to Riches: Pay Yourself First.

I want all of us to have financial freedom. The key to financial freedom and the road to prosperity starts with one simple concept- pay yourself first!  Our friend Kerri  Smith show us how we can go from rags to riches by applying this concept.

Have you wondered how rich people got to be rich people? Some, of course, are born into money but others come from very humble beginnings. Even those born into money have to find ways to save or make more money than they are spending. They have also learned that everything has a price and the most precious is their time. 

The value of your time will change over your lifetime; however what you do with the money you make will decide whether your financial picture will be that of rags or riches. 

We know the government will take 20-30% with all the taxes such as federal income tax, state income tax, sales tax, property tax and so on. So, you should retain a portion of your income to build your financial wealth – that’s paying yourself first! That’s before you buy groceries, pay your rent or any other bill.
By paying yourself first, you build a nest egg to fund future goals, a cushion in case of an emergency and it will build your confidence. Believe it or not, the lack of a nest egg will influence your decisions. You will stay in a dead-end job or put off going back to school or it can deter you from starting a new business. 

Most people spend what they make and even more by using credit. One way to think about spending is to equate everything to your hourly wage. For instance, if you make $15 an hour and they take out $5 for taxes, it leaves about $10 per hour in your pocket. When you buy a new iPad for $499, you will have to work 50 hours to pay for it – 50 hours! And if you buy it on credit, you will be working a lot more hours than that to pay for it.  Even smaller purchases such as DVDs or fancy frozen coffees, they really add up. Before you make a purchase, consider how many hours you will have to work to pay for it and you will definitely change how you spend your money.

How do you start paying yourself first? It’s simple really. Start with 2-5% of your take home pay and deposit it into a savings account directly from your paycheck. There is an old saying, “if I don’t see it, I won’t spend it.” That’s just one of the reasons taxes are taken out of our paycheck.  Ideally, you would want to get to 10-15% of your take home pay. 

A clever way to remind yourself, is to set up a timer on your phone or computer for payday and put three words in the description “pay yourself first” … You’ll be richer for it. 

- Kerri Smith, CU Member