The concept of pay yourself first has tremendous powers of making one rich. This theory I first read in a book called Rich Dad Poor Dad by Robert Kiyosaki. Even while I was reading this book, I realized that the concept is going to change my life. I knew something about investing and saving money before I read this book.
But the concept of paying oneself first was completely innovative. Getting rich is anyhow difficult. Hence I was looking for an approach that has powers of really making one rich. For past some years I have followed this concept. Today I can vouch that ‘pay yourself fist’ concept really works. I would also like my readers to follow it for one year at least.
Robert Kiyosaki who wrote the book Rich Dad Poor Dad has beautifully explained this innovative concept. I greatly admire Kiyosaki for this one concept alone. Hence I decided to to share it with my readers. In this article we will some practical examples related to execution of ‘pay yourself first’.
Pay Yourself First by Budgeting All Expenses
People must budget all personal expenses. One must budget how maximum can be spent on groceries, vegetables, entertainment, utility bills, investment etc. In the same way, one must budget how much one can pay oneself, even before committing any expenses.
Important is to START paying oneself first. This budgeted amount, come whatever may must be paid to self. To understand the effectiveness of paying oneself fist, one must keep doing it for 12 months in a row. But it is important to finalize a right value before starting to pay to self. How to calculate ones budget for ‘paying oneself first?
How to Pay Yourself First
* One must pen-down all INCOMES on a piece of paper.
* One must pen-down all EXPENSES on a piece of paper.
* One must calculate the SAVINGS and write it on a piece of paper.
* One must make sure that all expenses are listed. The savings that is calculated should be real FREE MONEY.
* This free-money can be budgeted and tagged as “PAY YOURSELF FIRST” money.
* Transfer this budgeted savings on the first hour of salary getting credited to one bank account.
* Make sure to use the PAY YOURSELF MONEY to generate alternative source of income (invest it differently).
Suppose one earns Rs 10,000 per month. As per ones expense calculations, he spends Rs 9,500 each of his income. It means his saving is Rs 5 each month. Multiply this value by the magic number three (3). The value here will be Rs 1,500. One can start paying self Rs 1500 each month. It is also evident that if one starts to pay-self Rs 1500 per month, some expense needs to be compromised. The compromise is imminent, but it is also a fact that we often overspend. If one digs deeply into ones budget, making a provision for extra Rs 1000 (Rs 1500-500) will not be difficult. I am saying this with my practical experience.
If one does not want to compromise, he has an alternative. He should think about ways of generating alternative source of income. I know a person whose dividends from equity are his alternative source of income. In his earlier days, when he was not paying himself first, he used to spend needlessly. But after starting to pay-self, he saw his savings grow. This triggered him to make more money. Hence he started working harder to increase his dividend income. The more he was earning in dividends the more he was paying to himself. Soon it becomes a viscous circle (in a positive way). Higher alternative source of income meant higher self-payments. As a result, over a period of time, his dependency on salary was reduced considerably. Just by deciding to pay himself first, he opened inroads for himself towards financial independence.
Pay yourself first is a tough concept to follow?
Yes, in initial days it will pose some difficulty. We are not used to not-spending money. Not able to spend money is a difficult task for many. It becomes even more difficult if one has money in hand (paid to self) but is not allowed to spend it. In this case, one is not spending on one hand, and on other hand person is working hard to develop alternative source of incomes. Some might even ask that, then why we are earning money? If the earned money doesn’t get spent, why earn it in first place? Its a pain for common man to follow this concept.
But this pain is worth a try. This pain will ultimately lead us to financial independence. Family of a financially independent person can live life in their own terms.
Do you know why the concept of paying oneself first looks tough in the beginning? It feels so not because it is tough, but because we have got too used to living an easy life. We get easy bank loan to fund our necessities. What we care about is immediate gratifications. We compromise our financial independence for immediate gratifications. The happiness may last only for few hours when we fall for immediate gratifications. But only if we delay our gratifications, we can come closer to financial independence. Paying yourself first can provide financial independence, whose happiness can be felt by generations to come.
We take bank loans and then spend half your life paying back the debts. Easy EMI’s makes us live in a world of maze. Bank loans mak us feel comfortable which in reality in only making us slave of banks.
One must try to earn at least Rs 1,000 each month on your own (not job). One must use their own innovative way to generate money. Do not get disheartened with the low value of Rs 1000. Important to realize is that, these Rs 1000 will motivate you to make it Rs 2000 and beyond. Paying yourself first acts as trigger and people starts to think about ways of generating alternative incomes.
If the habit of paying oneself first is practiced for years, a day will not be far when alternative source of income will become 50% of ones monthly expense. That day one can say that he/she is 50% financially independent.
Take a Pledge to Pay Yourself First for next 1 year
This is perhaps not the first time that you have taken a pledge. But this time the difference is, you have a proven concept that can really make you financially independent. On one hand you are saving money (by paying yourself first). On other hand you are also making more money (developing alternative source of income).
Its a fact that by following this concept for one year alone will not make one financially independent. But this one year will encourage one to continue it further. Over a period of time (five to seven years) one will see ones personal finances improving like a dream run.
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