Before Paying Your Bills or the Nice Treat, Pay Yourself First
#FinancialFreedom #PersonalFinance
I’m going to make this short.
The best book I read last year was “The Richest Man in Babylon” by George S. Clason.
Why?
Because of this line:
“I found the road to wealth when I decided a part of all I earned was mine to keep. And so will you.”
This one statement completely blew my mind on how I view income, spending, and savings. I promise you when I become wealthy in some years, I’ll always quote this in all my TED talks. Lol!
The Richest Man in Babylon is a book that focuses on three things:
1. How to acquire money
2. How to keep it
3. How to grow it
But let’s focus on the second part, how to keep the money.
The Story of Arkard, the Richest Man in Babylon
Arkad, who later became the richest man in Babylon, was nothing but a scribe who wrote on clay tablets for money. He worked hard but at the end of the day, he didn’t have anything to show for his labor. All his earnings went to food, clothing, and the usual things human beings spend on to make their lives comfortable and merry. And if he was being honest, he couldn’t even account for where some of his money went to. One day he has money, the next he doesn’t. Rinse and repeat.
One day, Arkad decided he was tired. He was done working hard while never having enough money for anything he wanted. He decided he also wanted to be like the wealthy men he would see on the streets with expensive garments and gold jewelry, riding on beautiful chariots and having men waiting on them in all corners. The problem, he didn’t know how.
Have you heard of the saying that when you decide you want something, the universe conspires to give it to you?
That’s what happened.
While going on with his usual work day, Algamish the money lender walked in and ordered a copy of the Ninth Law. Usually, carving such an order on clay tablets would take a week. But Algamish insisted the work must be finished in two days. Arkad labored hard on it but still, when Algamish came to pick it up two days later, it was incomplete. The money lender was angry and Arkad was terrified. But at that moment, Arkad did something he had never done before. He struck a bargain with Algamish. He said, “Algamish, you’re a very rich man. Tell me how I may also become rich, and all night I will carve upon the clay, and when the sun rises it shall be completed.”
True to his word, Arkad had the Ninth Law ready the following day. Impressed, the money lender also kept his word and said to Arkad, “I found the road to wealth when I decided a part of all I earned was mine to keep. And so will you.”
Simply, pay yourself, preferably first.
A Part of All You Earn Is Yours to Keep
Let me elaborate.
When you receive your wages or salary, you have needs and wants, expenses to cater for with that money. There’s rent so you pay the landlord. There’s food so you pay the supermarkets and food vendors. There’s clothing, so you the boutique owners. There’s also helping your family at home, so you send your mother her urgent 2k. Not to forget the small purchases you make here and there just because. Your income, which you receive once a month, is split in a thousand different ways and if you’re not careful, the 5k you were to save disappears also.
In this case, you have paid everyone else except for yourself. For a whole month, you’ve been working for others but yourself. Don’t believe me? Just take a look at who ends up with your hard-earned cash. If you do this enough times, month in and month out, a year ends and you’ve nothing to show for all your hard work, yet you’ve got a steady income. Worst case scenario, you end up with nothing to show and a huge debt on top of it. God forbid you to lose your job today or have an emergency requiring a lump sum of money…
A part of all the money you earn is yours to keep.
How?
Traditionally, any amount of money we put aside not to use, we call it savings. But do we really ‘put aside’ or do we put what is ‘left over’ after use? Food for thought.
To pay yourself first means intentionally taking out a specific portion of your income and putting it aside as your savings before you can start spending the rest of the money on your needs and wants. Algamish put it so clearly, “For every ten gold coins I earn, one is but mine to keep”. This money you put aside when you truly think about it, it’s your actual payment for the work you do. That money belongs only to you, not to the landlord or the shopkeeper, you!
But if you’re not allowed to spend the money you pay yourself, what’s the point?
The money you set aside acts as your savings for you and your future self. Savings serve two purposes:
1. Readily available cash for emergencies
2. Seed capital for potential investments
When you’re tired of living paycheck to paycheck, want to start a business, or simply want more and better from life as Arkad did, it always comes down to if you’ve some money to change the course of your life. If you’ve some money saved up, it’s easier to take the risk of making a change. If not, you’re stuck or risk going into bad debt to finance your dreams.
How much should you pay yourself?
Algamish advised Arkad to ensure he doesn’t pay himself less than ten percent of his wages.
On the other hand, many financial advisers, blogs, and videos, encourage paying yourself at least twenty percent of your income. These are the percentages they feel would be comfortable putting away without altering their lifestyle drastically or straining too much. Well, as for me, I’d say save as much as you possibly could without killing yourself. If at the moment you’ve many financial responsibilities and can only spare ten percent, save the ten percent without guilt or wishing you could save more. If you don’t have many expenses and can afford to save forty to sixty percent of your income, save it. Another awesome book I read, The Psychology of Money by Morgan Housel, said, in high season save more and in low season, save less. But that’s a story for another day.
That’s it for today.
Until next time, bye!
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