pay yourself first

In my previous post on this subject I wrote about one of the most important habits to building wealth, paying yourself first. In short, you want to make sure that 10 to 20% of your income is going to a separate savings account as soon as you get paid. Is this enough though to make you rich?

Probably not. Paying yourself first is just the beginning. I have paid myself first for sometime now, and yes for such a simple idea it works amazingly well. The trap I used to fall into though is that once I had built up a sizeable sum, I would spend it on something such as a holiday. Now I would never suggest not taking holidays (in fact I plan to write about why you should be taking regular holidays) but spending your entire savings on such things as a holiday, car, plasma tv, etc will not make you rich.

I first came across this idea in The Richest Man in Babylon by George S. Clason. Since then I have come across the idea in numberous personal finance books, such as Rich Dad, Poor Dad. If you haven’t heard of this idea before, read on because this is a simple but brilliant idea that can make you very wealthy. And if you have previously heard of the idea of Pay Yourself First, ask yourself this: am I practising it? Millions of people have heard of this idea, but few actually follow it.

The idea works like this: most people like the idea of saving part of their pay for some future goal such as a vacation or deposit to purchase a house. The problem is that when they get paid the first thing they do is pay their bills, purchase that item of clothing they’ve had their eye on, etc. Saving is basically what is left at the end of the pay cycle. And guess what? This is usually very little. People naturally spend until all their money is gone.