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.
The idea is simple: make yourself a priority along with other spending. This is a great psychological and practical technique to help you save. Plus, you get to spend on things you love!
How paying yourself first works
Here is an situation where the technique of paying yourself first could work. Let’s say you want to save money to buy a car. Normally you might pay your obligations to others first, then happily spend your money at restaurants and shopping, and finally you’d see if any thing is left over. And of course, there is often nothing.
Paying yourself first reverses the priorities. What you would do instead is you would save money for the car, then pay other obligations, and finally spend the remainder. By paying yourself first, you prioritize the goal that’s the hardest to motivate, and then you can allocate the remaining money because other people are motivating you.
Make it automatic
The great thing is that it’s really easy to pay yourself first. All you have to do is tell your employer to directly deposit a portion of your paycheck in a saivngs account or bank account, or anyplace that money will be preserved for savings.
If you get paid in cash, it’s a little bit harder. In this case you need to physically deposit the money in a bank account or savings account. But the effort is well worth it–it should help you prioritize saving.
How can you apply paying yourself first?
Obviously this strategy is not about paying yourself for new pair of shoes or a new laptop. This is about putting money for the areas that are deficient.
Here are a few responsible ways to apply the philosophy:
- Pay off credit card debt
- Increase the balance at a savings account
- Invest in your 401(k) or other retirement account
- Pay off your student loans
You’ll be amazed how quickly your debt reduces or vanishes and how fast you’ll put yourself in great financial habits.
Bonus: apply the idea elsewhere
Paying yourself first is a philosophy that can be extended to things besides money. For example, you can view each day as a 24-hour “paycheck,” and pay yourself first with time.
I use this technique frequently, and here are a few of the ways I spend my time:
- 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.
- Schedule personal appointments in the morning before going to work. It is very tempting to let a dentist appointment slip for months.
- 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 aren’t keen on 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].
