I have literally read well over one hundred books that have set forth a formula or system for creating wealth. Some of these are the classics that we all begin to hear about if you’re in the wealth building space for enough time. Some of these, like the classics, are also quite good based on my life experience of being directly employed in the space of wealth building, first in economic development and then in the academic space teaching and counseling individuals on the aspects of wealth building.
Principle Rules of Wealth Building
Much of what I’ve learned, distilled and filtered against my own life lessons in fact validates several of these wealth building formulas and systems. To that end, I believe that they are in fact ‘truths’ as they relate to wealth building and make up what I would refer to as the ‘principle rules’ of any wealth building system being expressed nowadays.
Although I would assert that most of them are very important and must be exercised as part of the overall system in order to build wealth, there are some that have to be put above others as they are so powerful and impactful. In fact, they may actually be prerequisites to be put in place in order for the other principles to work.
Of these, there is none more important than the age-old advice that you may have heard from a family member. Unlike other financial advice from relatives, this is advice you should take to heart. It’s the advice that you should ‘Pay Yourself First’.
I’ve got to come clean and confess that my father had been giving us kids that advice since we were little. In my heart of hearts I knew it was important and really believed that my father also believed it too. However, I wasn’t convinced that my father’s ‘actions’ were consistent with the advice he was giving us kids and therefore I didn’t take it as seriously as I now, looking back, wish that I did.
Now as an adult, I am fully comfortable with the concept of the other age-old advice of ‘do as I say, not as I do’. The underlying problem as human beings is that we tend to model behavior a whole lot more than words being spoken.
Had I as a young person truly believed, whether or not my father was or wasn’t abiding by his own advice I wasn’t sure, that he was living his own advice I think I might have actually abided by what he was saying.
That said, I have come to accept and appreciate my reconciliation with the fact that paying yourself first is one of the most critical elements there is in the exercise of building wealth.
What does Pay yourself First mean?
So what does the Pay Yourself First concept? The good news is that I believe that it means EXACTLY what the words imply and that there is no way to otherwise misinterpret what these words want us to do. It literally means that we need to pay ourselves first before we pay anybody else. Period! End of debate. No more discussion.
However, hearing the words (like I did when I was young) and DOING something about them are eons apart from one another! THAT’s the crux of most financial advice, especially the good financial advice. There’s a compartment in our rational brain where we KNOW that it makes sense. We KNOW that we should be following it. BUT we somehow don’t do what is required to turn a thought into an action.
So the Paying Yourself First method is LITERALLY the practice of making sure that YOU get paid from your paycheck first. (Now, we all do realize that Uncle Sam has his sticky little fingers in our paycheck before we see anything for ourselves but you get the picture!)
Therefore, notwithstanding taxes and regulated payroll deductions, we are making sure that we get every remaining dollar left within our paycheck directed into a checking account that we control.
At this point, we are now fully in control of what happens next. We have successfully moved from the concept of paying ourselves first to the practice of paying ourselves first! So how do we do it? How do we ensure that we are maximizing our ability of paying ourselves first?
How do you pay yourself first – Set up a system
The answer is less about theory and a whole lot more about creating a behavior. That behavior is literally setting up a system that will REQUIRE that we pay ourselves first. Let me say that in slow motion…we need to set up a system that will R-E-Q-U-I-R-E us to pay ourselves first. Huh, sounds complicated. Not so.
In fact, the post where I talk about the No Budget Budget Edit Post “Pay Yourself First Budget” ‹ The Financial Stoic — WordPress puts it all into motion for us. By enacting the No Budget Budget, we ‘lock’ into place our very first actions which are to pay ourselves first with the money that is in our ‘take home’ pay.
More specifically, we set up pre-established payments to ourselves BEFORE we pay anyone else. That’s a VERY important concept so I’m going to reiterate that once again.
Again, we set up mechanisms such as automatic payments through our checking account to make transfers to investments and/or savings accounts that build our wealth.
Through our No Budget Budget we identify the maximum amount of funds that we can pay ourselves upfront before we need to pay others.
This then becomes the framework for our wealth building efforts, due to the fact that we now not only know what we have available to invest for our wealth but we now have made firm automatic commitments of investing/saving those funds.
As almost everything, paying ourselves first is not a hard concept to understand. However, doing it is not so easy to do. That said, it does become easy when we put into place the No Budget Budget AND enact dedicated automatic payments into investing/saving vehicles.
Go ahead…Pay Yourself First. After all, you deserve it!
