What does pay yourself first mean?
It means that when your monthly paycheck is credited to your bank accounts, your transfer ("pay") certain amount of the paycheck to another of your saving accounts before your pay to others (bills).
Why pay yourself first?
Many of us
will pay others (bills) first when receive our monthly paycheck. Hence
by end of the month, many of us will not have any or much money left for savings & investments.
It seems like we are making money for others instead for ourselves.
You may had
heard this “Is not much how much money you make, but is how much money you keep”
– by Robert Kiyosaki.
This is one of the best habits in building wealth.
How much to pay yourself first?This is one of the best habits in building wealth.
There is no fixed rules on how much to pay yourself first.
It can be a 10%, 20% or 30% of your net monthly paycheck or start with an amount which is comfortable to start with depending of your financial goals.
No matter what is the amount, start with an amount or lower percentage if you think 10% is too much at the moment.
I would recommend that you set automate transfer to pay yourself so that you will not forget and just let the payment automates monthly.
It would be even better if you can increase the percentage at least annually consistently.
Example (for illustration purpose):
Monthly net paycheck is $3,000
Set automated bank transfer to pay yourself $100.00 or 10% (which is $300.00) monthly from Jan 2020.
You increase to pay yourself $200.00 or 11% (which is $330.00) monthly from Jan 2021.
Review your expense & the amount to pay yourself. Ideally is to increase the amount annually. If not, at least try not to decrease the amount.
You can increase/add
- the difference of your pay increment
- your annual bonus
- your additional incentives
Overview of paying yourself first?
So start paying yourself from your next paycheck.
