Updated: April 29, 2022
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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Hi Sir Fitz
Truly this is a time-tested strategy, 7 years ago when I was in my 20’s this is the first lesson I really applied in my personal finances. This is after reading a filipino- authored personal finance book (12 steps to build wealth….) . As a Yuppie, you cannot start to build wealth without applying this principle.This requires discipline and consistency. But once this becomes a habit, this wont be hard at all. It’s automatic!
From now on I should pay myself first. Thanks for the info.
This is my Golden Rule!
See you tomorrow Sir.Fitz-<3
Even though I love how Richard Castle *squee* inserted in the subject hahaha,, its kinda disappointing that schools did not include this in the curriculum. It should be taught at a very young age to make it a habit of every Filipino unlike in other countries like America they had financial literacy subject. After college, only i learn all about this. thank you so much for this!
Very Inspiring! And I attest that this is true, based from my experience, I tried to go back to the old habit on prioritizing my expenses then savings and I had a hard time and it created chaos on my mind! LOL Hope everyone will practice this, at first it is hard, but sooner or later it will be just a habit and it will be easy
[…] Paying yourself first means immediately taking and saving a portion of your income before spending your money on everything else. […]
Yup! Paying myself first..it’s true that it becomes a habit.. Can go to emergency and investment funds.. I’ve also started the auto debit uitf which I learned from one of your blogs..way back! 🙂
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Not going to bash my beautiful wife here in public but I will hint at something I wish she would improve on. My bride has a heart that easily hurts for all those around her be it family member, friend or simple acquaintance. Her good and generous nature has been abused way too many times in the past. My plan to to share this article with her and also remind my too generous wife of the discussion we had about this. Continue to help other but do so with more discretion. Start saving more so there is less need work so hard to recover from each time others got help. My wife gets behind and doubles her work load to make up for the kindness she shows others. Saving more = ending the abuse of my wife’s generosity.
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