Many finance professionals consider this to be the golden rule of personal finance. Personally, I swear by it. Paying yourself first implies that savings are automatically transferred to your personal accounts upon receipt of the monetary amount (cash). In other words, you automatically pay yourself first before you begin to pay other financial necessities such as bills or discretionary purchases.

The Concept

This concept was first illustrated to me when I read “Rich Dad Poor Dad” by Robert Kiyosaki. For those of you who haven’t read this book, I highly recommend it. Essentially, Mr. Kiyosaki illustrates the flow of currency through a wealthy person’s balance sheet and a poor person’s balance sheet. A wealthy individual will receive the currency, pay themselves first and with whatever amount of money is left over he or she will pay their other expenses or have money for discretionary purchases. A poor individual will receive the currency, pay their bills and use the money for discretionary reasons, and then with whatever amount left over (if any) the individual will save. The wealthy individual pays themselves first…the poor individual pays others first. Plain and simple.

However, shockingly many individuals are oblivious to this concept. It is staggering to me. Everyone seems to be in a rush to pay their bills and make sure their expenses are taken care of; I agree that bills and expenses must be paid but hey…you have to pay yourself first. You have to look out for yourself. If you are not careful, you will spend your whole life paying bills instead of saving stacks.

The good news is, it is very simple to execute this concept for your own personal finances. It is called automation. Using automation, one can automatically transfer monetary amounts into various savings vehicles; such as 401k, IRA, taxable accounts and simple bank accounts. The key is to set it up. When you receive a paycheck, simply automate the savings to route to a savings vehicle. In addition, schedule repetitive dates each month to transfer money from your checking account into the above referenced savings vehicles. It’s that simple. As a result, you are paying yourself first before you pay others.

Final Thoughts

This concept if continually applied for a number of years can set you up for a very healthy financial future. The beauty of it is its simplicity.

Bottom line…pay yourself first before you pay for anything else. The key is to just start. After you start, just sit back and enjoy the ride.



Pay Yourself First

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