How to Pay Yourself First in 1 easy step

Learn how to pay yourself first and earn money while you sleep… Sounds a bit scammy, right? But, I can promise you it’s not. This is the most crucial step if you ever want to reach financial freedom.

Getting to become financially stable is extremely exciting and if you are anything like me, you are doing all the research you possibly can to make sure you understand the “pay yourself meaning.” As someone who had this totally wrong, I’m sharing with you the dumb down explanation on what it entails.

You are going to learn all about how to start paying yourself first and keeping more money in your pocket.

After learning about paying yourself first, you are going to be a pro and extra prepared when prioritizing your hard earned money.

This post is all about how to pay yourself first.

What does pay yourself first mean?

I have always heard that phrase: “pay yourself first.” But, (I had no idea what it was).

I honestly thought it meant putting some money aside as soon as I got my paycheck.

And I did this for a while, thinking I was actually doing the “paying yourself first” thing. So I watched my savings grow and I was so proud of myself…but, that wasn’t quite it.

It wasn’t until I read the book The Latte Factor from David Bach that I really understood what “paying yourself first” entails. (Which by the way, I LOVED LOVED his book).

In order to pay yourself first, all you gotta do is invest your money. You should set aside a percentage out of your paycheck and send it directly to your 401k.

You know, that retirement account that you job offers.

So, yes, I had it all backwards!

I was thinking it was after I got my paycheck…

But, noooo

It literally means you get to invest WAY before taxes are taken out. And literally let money grow in your account while you sleep.

This strategy is pretty awesome because you’ll be stashing money away from Uncle Sam and letting it compound over time.

If you think about it, when you use the “pay yourself first” strategy, you’ll be investing the entire dollar amount before it gets eaten by taxes.

Think about it.

If you did not want to “pay yourself first” and wanted to save money instead, that $1 now is worth now like 0.60 cents after taxes, so it will take a lot longer for it to grow and compound.

Besides, who wouldn’t want to grow their wealth each paycheck at a time?

That’s exactly the same strategy that most self-made millionaires used to get their first million. They took advantage of their employer’s retirement account and maxed it out every year consistently.

It’s not that hard to do, all you would have to do is probably go to HR and set up an automatic contribution to your retirement account.

So, how much do you pay yourself first?

Yup, I had this one wrong too. And the answer might surprise you too.

I thought I had it all figured out since I had been contributing up to the match in my 401k for the past few years. (Which was about was like 3% or 6%).

Man!! Was I way far off!

After reading the Latte Factor by David Bach, I quickly realized I wasn’t gonna get anywhere investing that little. So I did exactly what he suggests, which is to at least invest 10% automatically.

And I did.

And boy, did I see my money start growing and compounding much quicker!

If you can’t afford to “pay yourself” 10% out of each paycheck, at least try to enroll in your job’s 401k program and get their match.

Once you are able to get your finances in order and able to pay yourself more, you can increase your contribution gradually.

Maybe you can start out only contributing up to the match, and then after 6 months, you can crank it up to 8%, then up to 10%.

And if you are able to contribute %15 that’s even better!

The key is to become disciplined enough with your finances and learn to live without that money.

Don’t fall into the trap of “I’ll do it later.” And get used to spending money without having any goals or acting like there are no consequences to your actions.

You can become financially savvy and disciplined.

The easiest way to do it is by automating it.

You see, you first have to change your mindset and pay yourself first like you pay a bill. No ifs, and buts, about it, just do it! Your future self with thank you later.

Pay yourself first shocking example

Some thirty-years ago two young women faced the same decision whether or not to “pay themselves first.” They both were very similar: they both graduated college, had students loans, and were living paycheck to paycheck.

And they both were working for the same company they dreamed of when they were roommates in college.

Years flew by, and thirty years later, they were still working together for the same company. Now they wanted to retire to spend time with their loved ones.

But there was a HUGE difference between them…

One of the women was able to retire right away with approximately 1 million dollars in her retirement account.

While the other woman barely had $250,500 in her retirement account and couldn’t yet retire.

So, what was the HUGE difference, since they both worked for the same company and for the same amount of time?

Well…it boils down to their decision.

One of the women took action and decided to “pay herself first” and the other one didn’t.

You see, the difference is that one of the women took action and started to “pay herself first.” She was saving 15% of the income in a retirement account through her 401k at her job.

While the other woman always seemed to always come up with an excuse of why she couldn’t afford to contribute that much to retirement.

Who would you rather be? Would you like to retire with a decent amount of money?

The decision is in your hands. You have the knowledge now, so do something with it.

Did you notice the smarter woman was still investing even though she was living paycheck to paycheck and was paying student loans?

You can do the same, don’t leave investing for just the super rich people.

The easiest way to pay yourself first:

is by enrolling into your job’s 401k retirement account.

You can contact your HR and arrange to set up automatic contributions directly from each paycheck.

Aim to at least contribute up to the match. (Sometimes your job will offer you free $$ by matching your retirement contributions, so definitely take advantage of that).

If you are able to increase your 401k contributions to 15% over time.

If you are still contributing only about 6%, I challenge your to increase your amount little by little. Maybe you can increase it 1% next month and then in 3% more months increase it again.

Make it a savings goal to always contribute at least 15% to your retirement account from each paycheck.

This post was all about how to pay yourself first to help you be as prepared as possible to grow your money while you sleep.

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