Pay Yourself First.
That's it. That's the first rule of building wealth.
I know you've heard it before. It is a concept that has been around as long as the concept of economics and money. It's something we've heard from personal finance gurus and other keepers of financial wisdom over the years.
A wonderful theory; something we know to be true and with which we can agree, but experience proves that application is something else entirely. As you know, we live in a society where instant gratification overrules frugality, where the adverting agencies on Madison Avenue are so adept at making us want stuff to own.
It is easily observed that anyone will spend more money than they earn simply because our wants naturally outweigh our means. Lending companies know this rule and use it with great success to profit from our desire to satisfy our wants now, as we neglect to give any thought to what that will mean to our financial future.
The only way to break this cycle is to live within your means. But what are your "means"? Whatever you make in income? No. If you spend everything you make, you will not have anything left over for emergencies, important things you forgot you needed, or the ability to use saved money to create time in your life to pursue interests outside of work. Your "means" are really 80-90% of your income.
You see, your financial life is simply an equation of time and money. You spend your time earning money to pay for your lifestyle. When you save some of it, you create a cushion of money to pay for your expenses while you take the time to pursue other goals. Expenses never go away; there has to be some way of paying them. This simple reality is lost on the public, as evidenced by the amount of debt the average household has. They have committed their future time to the creation of money to pay for the lifestyle they couldn't do without today.
The answer? Pay yourself first. You make an income every week or month. Take the first 10-20% and put it away for your future creation of time for you and your family. Why first? Because if you do not treat it as the primary and most important monthly bill, you will never have it to save at the end of the month. Evidence to this fact is summed up in the amount of money you've accumulated in relation to all of the money you have earned over your lifetime. No, it was spent on stuff to satisfy the wants and needs of yesterday.
Would you miss an income tax payment? Or a mortgage payment? Or how about the electric bill? The worst thing that can happen is that you have to work out some kind of payment plan or other solution to handle the situation. But if you miss a payment to you and your family's financial future, you condemn yourself to the commitment of your time to someone else forever. Really, what is more important? Financial independence comes down to a couple of really simple decisions.
Here's the reality of the situation: if you cannot save 10-20% of your income right now, then you are living a lifestyle that you cannot afford. I know you don't want to hear it, and no one else will tell you, especially the banks and the advertisers. Yet, it's true.
If you cannot save 10% today, start with something you can do. Then gradually increase the amount of money saved each month. After a while you won't even miss the money.
As a financial advisor, I want people to be affluent and independent. Sometimes this works in opposition to common habits and behaviors adopted by our clients. All we can really do is remind you of the facts of your financial life that you may have forgotten and assist you in implementing these truths.
Your road to financial independence starts with paying yourself first.
About the Author:
After 15-plus years of being a financial planner, Christopher Music decided there had to be a better way. Witnessing financial debacles of big industry and government-driven economies caused Christopher to take action, developing an instrument that measures the success of any financial plan. The Financial Security AnalysisTM (FSA) is the back bone of Music's firm, Wealth Advisory Associates (WAA). WAA is a financial planning firm focused on helping private-practice physical therapists understand and implement the most effective strategies to achieving financial success and security. Visit www.wealthadvisoryassociates.com
