The discipline of saving money each month is one of the hardest I know of. When I was in high school I was very fortunate that my father gave me a classic book from the 1930s called “The richest man in Babylon” by George Clason. In short, The Richest Man in Babylon is a series of financial parables. Its set in ancient Babylon and tell the of a regular guy who used basic financial sense to build wealth. In this way he learned about financial stability and used it to become rich.
The book is based on concept of paying yourself 10% to 20% each month’s earnings before paying your bills. The author teaches the reader that if they desire to purchase something, they must first acquire the asset that will deliver the rate of return in order to purchase whatever it is they want.
I’m so glad that I absorbed this book at a young age, because I practiced its teachings over the course of of my life. In doing so, I have acquired 12 paid homes in the last 15 years. Now, I am in my mid-30s and I have my own successful tech company. I established GreenPal, which is best described as the Uber equivalent for lawn care.
The main lesson I took away from the book was the discipline of paying myself first in order to achieve financial stability. I credit all of my success with the inspiration this book gave me in managing my personal finances. Here are six ways the discipline of paying myself first helped my become financially independent, debt-free, and successful before the age of 30
1. Automatic & Non-Negotiable:
In order for this discipline to be effective, you must be consistent and non negotiable with your financial manners. I execute my financial plan by having an automatic draft from my personal checking account set up. The draft takes out 10% of my take-home pay to be deposited into my separate investment account. For this discipline to be effective it must be a consistent number that is drafted every month.
For example, if your take-home pay is $4000 each month, you should set up an automatic draft for the amount of $400. This money should then be deposited into a separate investment account.
2. Create Momentum
After you have committed and implemented the monthly payment for yourself, this will start to serve as momentum for managing all of your other personal finances.
Have you ever noticed that no matter how much your income grows, your expenses always grow along with it proportionally? When you commit to paying yourself first each month you short-circuit that phenomenon. In this way you achieve financial stability by forcing this self-pay behavior to become a regular monthly, never-changing expense.
3. Attack Debt on the Path to Financial Stability
A core tenet of this discipline is to pay yourself first before paying any debtors. That goes for credit cards, mortgages, personal loans etc. While it might seem counter intuitive to delay paying debts in order to achieve financial stability, it is not. When you delay the payment, you will definitely hear from your agitated creditors. This will surely create some physiological pain for you.
This pain will cause you to free up more of your income in order to attack your debts. Your income is your most effect weapon in attacking debt. This psychological shift in thinking will protect your income from being wasted on avoidable and unnecessary expenses.
4. Control Your Money
One of the ways that most of us are frivolous in our personal finances is with our meals and entertainment expenses. However, if you know that every month on the 1st you will lose 10 per cent of your income to savings, you will most likely try and avoid non-essential expenses such as going out to dinner, or luxury home furnishings. All of these expenses are avoidable and, in the grand scheme of things, not really necessary for achieving your financial goals.
Our expenses always grow to fill the limits of our income. This is why paying yourself first each month is vital for achieving financial stability.
5. Private Victories
After successfully paying myself for a few years I began to pride myself with this private victory. Seeing my investment account balance grow each month, gave me a sense of real personal accomplishment. This only fueled my desire to put more of my money to work for myself. I never would have gotten to that “ah ha moment”, had I started saving cold turkey.
6. Win at Life
In conclusion, winning feels good. It feels good to be financially independent. Even more, it feels good to know that your money is working for you 24 hours a day. Life goes by while most people are making grand plans for it. By following the discipline of paying yourself first, you build up momentum and have something to show for the years of hard work and discipline.
No matter your income , paying yourself first will enable you to build real worth in your investment account that will only grow in value as time goes on. Thus giving you peace of mind and financial stability.