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Pay Yourself First

Why do you get up every morning and go to work ?

If you are like most people, you need to work in order to live.  Work isn’t necessarily a bad thing.  People have been doing it for thousands of years.  Unless your work is extremely stressful or dangerous, it’s probably a good way to earn money for the things you want and need.

It’s a nice arrangement.  You work and contribute to society.  You receive money and other benefits.  The government collects your taxes. You get to eat and buy stuff. Others provide your stuff and earn the money you spend. Others spend their money, which potentially creates work for you.  Everybody is happy!!!

Do you ever save any of the money that you earn ?

Most people don’t think it’s a problem to spend all of their money. They eat, they buy stuff and they have fun. Soon, they will get more money and do it all over again. As long as they keep getting paid, they will always have money. So, why on Earth would they want to spend less than they earn now and put it in a boring investment ? In fact, they often buy stuff they can’t afford right now and pay for it later.

Do you work for Citibank, GMAC, Verizon, Edison and Exxon ?

There’s a reason that banks, utilities and insurance companies can afford all of those expensive high-rise buildings in every major metropolitan area.  They have millions of wage slaves, working everyday, just to give them money. Certainly, they provide a useful service or else they would go out of business.  The point is, that they have figured out how to get some portion of all your future earnings and this makes their futures very secure.

Is your own future very secure ?

If you are like many Americans, than the answer is probably No. Many Americans are still living paycheck to paycheck.  And, they are only a couple of missing paychecks away from serious financial troubles. There is a growing population of working homeless in America today. These are often just hard-working people, who have suffered a small setback.  Bad things can happen to good people.

How can you make your future more secure ?

Why not be like your own bank ?  Why not keep some part of all your future earnings for yourself ?  Why not get up everyday and go to work for yourself ?  In fact, why not Pay Yourself First and make everyone else wait to get their money ?  That’s what banks do.  They get your money first (from your check or Direct Deposit) and then they may let you have it back, for a small fee.  Do you suppose any bank would be willing to give you all of their money ?  Not likely.

How can you Pay Yourself First ?

One of the easiest ways is with a 401K plan.  The money comes out before you even see your check and it gets tucked away into a nice investment.  Your 401K contributions are tax-deferred, so you can Pay Yourself First and make the Government wait for their taxes.  That rarely happens.  Plus, a 401K plan can have matching contributions.   If so, now your company is Paying you First.  Be sure to take advantage of your company’s 401K plan.  If you are self-employed or your company doesn’t offer a 401K, consider starting an IRA.

Another great idea is to use Automatic Monthly Contributions or Direct Deposit into an investment.  Mutual funds and brokerage accounts will often let you make these types of contributions, deposited from your paycheck or deducted from your bank account.  This may take some getting used to, but it’s a great concept.  The money comes out, just like taxes or an automatic utility bill, but you get to keep the money.  It forces you to save and you may even be able to start an investment with “Zero Down”.  Mutual funds will often waive the minimum investment, if you start with an automatic contribution.

How much should you pay yourself ?

That really depends on your goals and your financial situation.  I strongly recommend that you save at least 10% of your net pay.  (Net pay is your paycheck, after taxes and deductions.)  If you think saving 10% might be too difficult, then start with 5% and work your way up.

After all, it’s your money.  You should decide how much you want to get paid.  And if that isn’t enough, you should give yourself a raise.

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