What Does “Pay Yourself First” Really Mean?

Posted on November 8, 2007 at 12:56 pm
Filed Under Financial Planning, Investment Planning, Retirement Planning

The phrase “Pay Yourself First” has become a commonly accepted financial term promoted by many Guru’s and Author’s including David Chilton (The Wealthy Barber) and David Bach (The Automatic Millionaire) to name a few.

To some it may be difficult to understand exactly what it means, so let me elaborate.

The underlying concept of “pay yourself first” is to take 10% of your pre-tax income and invest that for the long term, before you worry about your other expenses. You can accomplish this through your personal RRSP, your company pension plan, or numerous other investment vehicles. It is considered a fact that you will retire wealthy assuming you start sooner rather then later. Einstein himself said that ”the power of time and compound interest should be the 8th wonder of the world”.

Your Take-Away: In order to actually implement this concept, you do not need to stretch yourself to the point of becoming cash flow poor. In fact, it is very common for our clients to start a monthly savings plan with only 5% of their monthly income and quickly increase that number over time as they realize how easy it is to manage their existing lifestyle even with a decrease in cash flow. I’ve said it before, and I’ll say it again: Small, consistent steps lead to large, exciting results.

Starting a monthly investment program is easier then you think. Don’t feel as though you have to start huge, just make sure you start and I’m confident you’ll find that it’s a lot easier to manage your cash flow then you think.

Until next time, have a Terrific Thursday!

Chris

Bookmark to: