Pay Yourself First: Get Your Money Working For You
It can sometimes feel as though your wages are spent before you ever get the chance to see them. In order to put money aside and start investing, you need to start paying yourself first.
A comedian walks on stage and begins his set by asking who in the audience works for a bank.
A few nervous hands raise in the crowd.
“Let me rephrase that”, he says. “Who here has a mortgage, car loan, overdraft, or credit card?”
Every hand in the audience goes up.
“Who the hell do you think you’re working for then?” he asks.
Spending More Then You Save
Every month, the cash we earn is eaten away by the money we’ve already spent. Between credit cards, loan repayments, and simply just keeping the lights on, balancing the books can be a challenge for anyone.
It’s not even a matter of how much your take-home pay is. Unfortunately, the more you make, the more you’re going to spend. It’s human nature. That’s why you hear stories of executives who get fired from their seven-figure salary jobs and end up broke a year later.
A recent survey showed that 62% of Americans have less than $1000 in savings – while 21% don’t even have a savings account.
In fact, it’s estimated that around half of all American households have zero net wealth – which means their total debt greater than all of their assets combined.
Pay Yourself First
Your debt is working against you. To offset that, you need your money to be working for you. And that’s why you have to pay yourself first.
By paying yourself first, we mean that you should be setting aside some money for yourself every month before you even have the chance to spend it.
Try to think of every dollar you earn as an investment opportunity. Every time you spend, you should be asking yourself, “Is this the best investment I can make with this money?”
Sometimes you’ll decide that at that point in time, the best investment is a Grande Mochaccino with extra sugar and cream.
But don’t beat yourself up about it. You work hard for your money, and you’re entitled to spend it on small luxuries from time to time.
The important thing is that you’re now thinking about where your money is going. And once you get into that mindframe, you’ll start to notice that more often than not, you’ll put your wallet back in your pocket.
How Much Should You Pay Yourself?
So how much should you start paying yourself?
Most people would say that you should aim for 10% of your total income, but anything is better than nothing. Even a One Percent Investment strategy could help you get started.
It may seem like a lot to take on for those who struggle every month to pay the bills – but the less cash you have at hand, the less you’ll spend. Set up automatic transfers so your savings leave your account as soon as you get paid. You’ll be amazed at how fast you can adapt to spending a little bit less.
Ideally, you should be investing this money in the stock market, where it’s 10.5% average annual returns and compounding can begin building your wealth.
However, if you know you’re going to need that money in the near future, it’s better to keep it in cash. This will ensure you don’t have to sell your investments prematurely and lose money in a down market.
Once you’ve built up a cushion of emergency money, then you can start investing.
Remember, investing is nothing but a time game. It’s not about how much money you can afford to invest with, it’s about how early you get that money working for you.
Note: The author of this article is Rory Carron, Stock Analyst, Rubicoin – Head over to Rubicoin.com to visit the site or download their stock investing app: Invest.
Category: Stocks
