Updated: April 9, 2021
There are many ways to save money, but none of them is as effective as paying yourself first – or the simple act of immediately taking and keeping a portion of your income as soon as you receive it.
The concept of paying yourself first is often explained through the formula:
INCOME less SAVINGS equals EXPENSES
This simply says that you should save first before spending on everything else.
So why is this strategy an excellent way to save money? Here are 9 reasons.
1. Because it’s how most rich people started.
According to financial planners in the U.S., most of their high net worth clients started building their wealth by paying themselves first, and they continue to do so until now.
2. Because it’s a piece of time-tested financial advice.
This advice has survived generations, which to me is proof that it works. In fact, one of the earliest times that I learned about this strategy was through The Richest Man in Babylon, a book published way back in the 1920s.
3. Because it makes saving money automatic.
No need to think about how to lessen your expenses to save money, because you do it at the start. And some banks can automatically debit a fixed amount from your salary account towards a savings account every payday.
4. Which turns it into a habit.
Being able to save money with minimal effort will encourage you to do it regularly until it becomes a habit for life.
5. So you can spend money without guilt.
When you save money at the beginning, you can now freely spend everything that’s left. This means no more feelings of guilt when you go shopping.
6. Because it creates your emergency fund.
When you or someone you love gets sick, or when you need to do home repairs, or even when you lose your job (knock on wood) – you will always have a source of cash and won’t need to borrow money immediately.
7. And also, your investment fund.
When your emergency fund becomes big enough, you can now invest the money that you’re paying yourself each month and make your wealth grow faster.
8. Because as your savings go up, so does your confidence.
Seeing your money grow will give you the self-confidence to take more risks, think about life more positively, pursue more opportunities and have a more abundant mindset.
9. So start paying yourself first, because it is, after all, the first golden rule of personal finance.
A lot of people complain that they can’t save money. You won’t be one of them anymore because you’ve discovered the easiest way to do it.
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