We’ve all heard the basic personal financing philosophy, “Pay yourself first.” The idea, of course, is that any time you receive a paycheck, or any kind of income, you set a small percentage of it aside for yourself before you start paying bills and debts. Another way to look at paying yourself is to think of it like paying a bill; it’s just something you’re committed to being disciplined about every month. First you pay yourself, then you pay the mortgage and the other bills. The intended result is that once you’ve paid yourself, you won’t miss the money; you’ll simply adjust your spending that month to the amount that’s leftover after you’ve paid yourself and your bills. At the end of the month, most people don’t remember the small, practical decisions they made along the way to manage spending, but they do remember how they much they paid themselves and they feel good as they see the amount accumulate.
As you can see, I am an advocate of the “pay yourself first” strategy. However, there are times when it’s clearly not the smartest financial choice. For example, if someone is struggling financially month to month, weighed down by multiple credit card debts, it would probably make more sense to apply as much income as possible to paying off those debts.
The definition of “paying yourself” can be comically different depending on who it is that is advising you to adopt the philosophy. A conservative financial adviser may tell you that “paying yourself” means to save some for the future. An adventure junkie may tell you that “paying yourself” means to put aside some each month until you have enough to take a trip or fulfill a dream or goal. In my opinion, there’s not necessarily a hard and fast correct answer. The right answer has more to do with an individual’s unique financial situation and goals than anything else. But if you’re interested in paying yourself, here are a few thoughts to consider:
Cece Nunn - Jul 22, 2019
Johanna Cano - Jul 22, 2019
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