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Are You First on Your List?

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Are You First on Your List?

Posted By Brandon Lewis

Pay Yourself First

Today I’m going to talk about one of the first financial principles I ever learned.  The idea of paying yourself first.  Every time you make a dollar, you should take a portion of that dollar and pay yourself first.  Starting out this could be $0.10.  In that case, for every dollar you earn you will take a dime out and keep it for yourself.

Now I know what you might be saying. “Brandon, I keep the entire dollar for myself.”  That’s where you’re wrong.  If you are like most people, that dollar already has someone else’s name on it.  It could be your mortgage, gas, phone, utilities, credit card, car, or any number of obligations.  Typically, you are last on the list, if you even make the list at all.  I’m telling you, you should be first on that list.  Every time you get paid, you need to put at least a dime of every dollar aside for yourself.

At first, this might seem impossible.  After all you have all of these people to pay, right?  Well, you most likely have some budget leakage.  The budget leakage is all of that stuff that you buy but don’t really need.  If you don’t have enough money to pay yourself first, then you shouldn’t be buying things you don’t need. Once you start cutting out the leakage, you won’t even miss those expenses.

Where should I put my dime?

The next question should be, “What do I do with that dime?”  This is a very important question. It should be put to work making you more dimes, and it should be kept in a place that isn’t easily accessible.  The first place to stash that dime is inside a 401(k) account.  This makes it extra easy, because you don’t even see that dime to begin with.  Your employer can debit it from your paycheck before you see it, creating no way for you to spend it.

If you don’t have a 401(k) plan at your job, it’s okay. There are other options.  One of my favorite places to save money is Lending Club.  Lending Club allows you to be “the bank” for other people.  The one thing that I really like about Lending Club is that it ties up your money in a loan.  This means that you don’t have access to it.  You will slowly get your money back, with interest, as the loan is repaid.  Then you can reinvest these payments into new loans.  Your dimes are now making dimes, which are making more dimes!

The stock market is another place to store your dimes, but I recommend first educating yourself on the processes and products. There are a few ways to invest in the market, but the best way for a newbie is to just buy an index ETF like SPY (NYSE Arca) which tracks the S&P 500.  That last sentence may have sounded like gibberish to you.  If that’s the case, you should do a little Googling, and learn about ETFs.  The SPY ETF is made up of the 500 best companies in America.  As of this writing the S&P 500 is at an all-time high, which means it will eventually have to come back down.  This is okay though, because we like it when the market drops.  If you use the Robinhood app you can make trades for free.  Another app that is pretty good is Acorns.  This app will round up your purchases to the next dollar, and then invest for you.  I’m not entirely sure about the fees or returns, so I still just like buying an ETF.

Increase your dimes

If you begin to pay yourself first, you will be wealthy in no time. Once you forget that you are living on 90% of what you make, you should start paying yourself more.  Take away another dime every time you get paid.  The less ‘dimes’ you’re able to live on now, the sooner you can retire.  In fact, if you can pay yourself $0.70 of every dollar you make you will be able to retire in 10 years!  Check out Mr. Money Mustache’s blog to see how he did just that.

Take a look around and see what bills you can get rid of.  These will include credit cards, car loans, or mortgages.  Work on decreasing these so you can increase your dimes.  Then, take a look at bills that you can lower.  These might be phone, cable, or groceries.  If you really take the time to understand where your money goes, you will uncover extra dimes everywhere!

Written by Brandon Lewis

Brandon is the creator of brandonlewis.blog, a journey towards financial freedom. His main goal is to motivate others to join him on his journey to pay off debt and retire early.

http://brandonlewis.blog

2 thoughts on “Are You First on Your List?

  1. Very nice article looking at it from a different perspective. I usually budget first, then see whats left over to either save or spend. But saving a dime first makes cents (lol).

    You mentioned saving in a 401K first. My wife has a 401K at work. You indicated that this is a great place to start. However, her work does not contribute to any of her 401K. At my work, my employer matches my contributions up to 5%. Therefore, at least 5% to my 401K is a no brainer. We are wondering about hers. Since her work does not contribute to her 401K, is it better than she save on her own? For example, use a traditional or Roth IRA instead of her work 401K? That way she can invest in what she wants and have more control?

    1. Hey Kevin, that’s a great question! The reason I suggest that people invest in their 401(k) first is because it takes the money out before you see it in your checking account. This makes it impossible to spend on other things. The other thing I like about your 401(k) is that you can do automatic increases every year (I recommend at least 2%). If you consistently get raises then you can coincide your contribution increase with your raise, and you won’t even feel the extra coming out.

      I do also love IRAs, especially a Roth. I love the control that it gives you over your own investments. You can also invest in ETFs instead of mutual funds. Typically your 401(k) will give you better pricing on your funds than the open market, but not always. The only issue with the IRA is it’s on you to put the money in after it’s in your checking account.

      I hope this answers your questions!

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