Mind Your Decisions

Motivational Tool: Paying Yourself First

Today, I focus on the method known as “paying yourself first.” Chris Johnson at Wisebread explains the principle:

The key to increasing your wealth without knowing it, is to take away your money before you even think you have it. This money is not actually being lost, you are simply just paying yourself first. Whenever you recieve [sic] your paycheck, you should always FIRST devote a portion of it to your 401k or savings account. This allows you to have the freedom to spend the rest as you so choose, because you know you already have gotten your share. So you can give the credit card jerk his share, the landowner his share, and the cooks and oil tycoons and all the rest their shares with ease.

Here is an example of the technique succeeding. Let’s say you want to save money to buy a car. We normally would pay our obligations to others first, then happily spend our money at restaurants and shopping, and finally we’d see if any thing is left over at the end of the month. And of course, there is nothing. On the other hand, if you paid yourself first, you would save money for the car, then pay other obligations, and finally spend the remainder. By paying yourself first, you save for the goal that’s the hardest to motivate, and then you can allocate the remaining money because other people are motivating you.

The great thing is that it’s really easy to pay yourself first because many institutions allow you to directly deposit a portion of your paycheck with them. Here good things for which to pay yourself first:

1. Pay off credit card debt
2. Increase the balance at a savings account
3. Invest in your 401(k) or other retirement account
4. Pay off your student loans

Paying yourself first is a philosophy that can be extended to non-monetary activities. You can view each day as a 24-hour “paycheck,” and pay yourself first with time.

Here are some ways I’ve paid myself first with time:

1. Go to the gym in the morning before going to the office. If I let my workout slip till after work, I am never motivated enough to do it.
2. Schedule personal appointments in the morning before going to work. It is very tempting to let a dentist appointment slip for months.
3. Write a post before checking email, blogs, or espn.com. This one is really hard to follow and I’ll admit I can be better at it. Maybe I need to follow the advice from some other websites and force discipline by unplugging my internet connection.

If you pay yourself first, what are the things you do?

And if you don’t like this method, I also suggest a cutting-edge technique called growing a beard. It’s amazing how you can motivate yourself when facial hair is part of the equation. [Seriously, soccer star Wayne Rooney has used this technique].