Pay Yourself First is a single and most effective way to get rich quickly. Let’s try to understand this concept in detail. What do you do when you receive a paycheck? Who do you pay first? I am 100% sure that your first payment would be either for rent, utility bills, groceries, or for school fees. Once you are done with payment of all other bills whatever is left that will be paid to you. I mean left over will be your saving or Investment. It is called “Pay yourself Last”. What will be the case if we reverse this tendency? If we reverse this tendency and follow “Pay Yourself First” we will become rich quickly. But How? Let’s see.
Also Read – How to Stop Living Paycheck to Paycheck?
Pay Yourself First – What does it mean?
Pay Yourself First means Invest or save first before making any expense. It is similar to save first and then spend. This means saving and investment should on your top priority list.
I know it is difficult to follow this rule due to psychological limitation. We are programmed to handle money as spender. We can easily plan to spend money. However, it is difficult for us to save money.
The similar concept can be explained by an analogy of doing exercise. Many experts recommend “Doing Exercise First in the morning”. Regular exercise in the morning helps you to stay healthy. However, due to psychological reasons, many people say that they don’t have time to exercise in the morning. Later in the day they may or may not do exercise.
Recommended Post – 5 Qualities to become wealthy
Pay Yourself First is a similar concept. If you pay money to everyone else you may or may not save money for yourself. However, if you follow this concept very well you can be rich for sure.
How to Become Rich by Pay Yourself First?
Follow the step given below to become rich via – “Pay Yourself First”.
- First thing is to find out your monthly outgo on mandatory expenses. Once you have this detail find out how much money you can save from your income? It is advisable to save and invest at least 10% of your monthly income.
- Once you decide the amount you need to automate your investment in the assets that provide sufficient growth or generate passive income. It could be mutual funds, stocks, PPF, real estate etc. Payment should go to investment as soon as you receive your paycheck.
- By using this method you can establish a flow of steady passive income over the period. It could be either dividend, interest income or maybe rent. This passive income should reach a level where you can manage all your expenses from passive income. This is called as Financial Independence stage.
- Once you reach this stage. You can invest your entire salary/income to buy an asset that generates additional passive income.
Pay Yourself First – How?
There are multiple way how you can implement “Pay Yourself First”.
- You can open a second saving bank account and transfer your saving to that account. This is for building an emergency fund.
- You can open a Recurring Deposit account and set a mandate for deduction of amount from your salary/income account.
- Additionally, you can think of enabling auto sweep facility that will help you to earn extra money.
- It is a good idea to ask your employer to deduct additional VPF or EPF from your salary.
- You can set SIP in good mutual funds based on your risk profile.
- You can even purchase specific stock automatically.
I have already adopted pay yourself first and started investing in Mutual Funds and PPF. I am 100% sure if you follow this concept you will surely become rich.
All the Best. Happy Investing!