For Consumers: Why You Should Follow the Sage Advice, "Pay Yourself First"

Here at the Rules of Thumb blog from MoneyThumb, we are always striving to balance our posts between information and advice for CPAs, bookkeepers, small business owners and those interested in personal finance topics. Today we will balance the scales further by bringing you the post, For Consumers: Why You Should Follow the Sage Advice, "Pay Yourself First."

Out of simple curiosity, we decided to find out where this phrase, "pay yourself first" originated. Come to find out, the saying was coined by George S. Clason in his book Richest Man in Babylon. The phrase caught on like wildfire and is used by many personal finance experts, blogs, books.

Now let us explain why we here at MoneyThumb believe that consumers should always follow this sage advice, "Pay Yourself First, and how to go about doing this while still getting the bills paid and living a comfortable life.

Why You Should Follow the Sage Advice, "Pay Yourself First"

To pay yourself first means simply that before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account. The first bill you pay each month should be to yourself. This habit, developed early, can help you build a beautiful nest egg.

Why pay yourself first?

For the majority of young people, saving may seem impossible. You have rent, a car payment, and groceries: the basics. You think of saving money, but there’s just none left at the end of the month. And that’s the problem: Most people save what’s left over — left over after bills and after discretionary spending.

The problem is that if you don't develop the saving habit now, there are always going to be reasons to delay. Here are three reasons to start saving now instead of waiting until next year (or the year after):

You’re prioritizing saving

When you pay yourself first, you’re mentally establishing saving as a priority. You’re telling yourself that you are more important than the electric company or the landlord. Building savings is a powerful motivator — it’s empowering.

You’re developing good financial habits

Paying yourself first encourages sound financial habits. Most people spend their money in the following order: bills, fun, saving. Unsurprisingly, there’s usually little left over to put in the bank. But if you bump saving to the front — saving, bills, fun — you’re able to set the money aside before you rationalize reasons to spend it.

You’re prepared for money emergencies

By paying yourself first, you’re building a cash buffer with real-world applications. Regular steady contributions are an excellent way to build a nest egg. You can use the money to deal with emergencies. You can use it to purchase a house. You can use it to save for retirement. Paying yourself first gives you freedom — it opens a world of opportunity.

I’ve never met anyone who does not wish they had started saving earlier. Nobody tells themselves, “Saving was a mistake.” No matter what your age, begin saving now. And if you already save, consider boosting how much you set aside each month.

How to pay yourself first

The best way to develop a saving a habit is to make the process as painless as possible. Make it automatic. Make it invisible. If you arrange to have the money taken from your paycheck before you receive it, you’ll never know it’s missing.

Part of your savings plan will probably include retirement, but you should also save for intermediate goals too, such as buying a house, paying for a honeymoon, or purchasing a new car. Here are three easy ways to begin doing this yourself:

• If your employer offers a retirement plan — such as a 401(k) — enroll as soon as possible, especially if the company matches your contributions. Matched contributions are like free money.
• Starting a Roth IRA is one of the smartest moves a young adult can make. These accounts allow your investments to grow tax-free. Because of the extraordinary power of compound interest(and compound returns), regular investments in a Roth IRA from an early age can lead to enormous future wealth.
• Open a high interest savings account. Set up automatic transfers into this account, either directly from your paycheck or from your regular bank account. Treat these transfers like you’d treat any other financial obligation. This should be your first and most important bill every month.

We certainly hope this article has been of great help to our personal finance and consumer audience. Please share with your friends and business acquaintances on your social media channels so that they too can learn to "Pay Yourself First."