Are You Paying Yourself First?

I worked for a well know personal/business development company called, Peak Potentials Training. While there I must say I learned a lot to do with finances and one of the greatest things I learned was, “Pay yourself first“.

Let me repeat that, “Pay yourself first“! Not your bills or debts;but yourself! All to often I hear of people say that they wish they could afford to buy this or that! Well a lot of people work hard for their money and I’m assuming that you do too, so why should you not be able to buy that item you have been longing for?

Now by no means am I saying to ignore your bills/debts but be sure to pay yourself first. Here is something I learned a few years ago which has helped me tremendously. Get yourself 5 jars or even back accounts. I recommend ING Direct as it allows you to open multiple accounts under one name that you can manage easily online.

Label your jars or accounts Financial Freedom, Necessities, Education, Give, and Play. Below I explain how each account should be used. Beside each account there is a percentage. This percentage indicates the percentage of your income that should go into that account. It doesn’t matter if you get paid weekly, bi-weekly or monthly, each pay period, divide your income into these accounts.

Financial Freedom 15% – This is your golden egg! This is the money that you never touch until you hit retirement. This money should be put into a safe, interest baring account. An account that is guaranteed to grow with no risk of losing such as a GIC.

Necessities 40% – This is for your day-to-day living. With this money you pay your bills such as your mortgage/rent, utilities, car expenses, child care, groceries, etc and any debt. If you find it difficult to make all these payment with only 40% of your income then you need to consider either simplifying your life or generating addition income.

Education 15% – Yes…education is very important. I graduated from high school many years ago, however to this day, I take the time to learn new skills & techniques that help enrich my life. Whether it be buying a book on building strong relationships or a sales training seminar, I make sure that I learn something profound each month. I consider the world as my school and learn something new everyday, but still I find it empowering to learn from those whom have found success in different areas of life. This education does not have to be academical; it can be as simple and enjoyable as learning to master that hobby of yours to learning how to communicate better with others.

Savings 15% – This is different from your Financial Freedom Account mentioned above because you get to spend this money. This account is used for those big ticket items such as a luxurious vacation, a new television, a computer or whatever you want that carries a large price tag.

Give 5% – Simple enough, this account is used to give away. It can be money for a birthday gift, donate to your favorite charity or even give to your church. I often hear that it was better to give than to receive.

Play 10% – This account is a FUN account. I like to blow this money once a month…spoil myself with new clothes or a night out with the boys…whatever you like to do to spoil yourself…use this money to do it.

The above is not written in stone. You can adjust the percentages if you desire, but be sure 100% of your income is accounted for.