How to Pay Yourself First

You might have heard about the concept of paying yourself first and here you’ll get my step-by-step recipe that can turn your focus from bills and expenses to being able to pay yourself before you pay anything else.

Today you might be in a situation where everything you earn is going to expenses and fun. Most people pay their bills first but with this concept you pay your bills last. It’s really a mindset change more than anything else. You want your money to first and foremost go into “cash-flowing asset” and in plain English that means something that is producing cash for you.

These are my steps; they don’t work for everyone, and ex. author Robert Kiyosaki would likely not recommend you do it this way because he would rather want you to set a goal on how you could earn more rather than cut anything out. But this is what worked for me and if you would prefer to set a goal like Robert Kiyosaki, jump to step #2

Step #1: Cut Down on Unnecessary Expenses

Make a list of everything you buy that you don’t need. Could be that you need to cut the Starbucks’ Caffe Latte, the beer after work, plan your meals or don’t buy any takeout. If you need to make a necessary purchase, look online for sales or discount codes or negotiate a better price. Whatever your guilty pleasure is, this is the time you must brainstorm on everything you buy that you don’t really need and then not buy it for 3 months. You can do it!

Step #2: Add cash to your brokerage account

All the dollar bills you save here and there: transfer them into your brokerage account. If you have a lot of self-discipline, you can do it at the end of the month. If you need to transfer immediately to not spend the money, do that. You know yourself best. If you decide to set a goal, then transfer 1% or 5% - 10% (whatever you’ve set as a goal) of your monthly income into your brokerage account.

Remember to tell someone of how proud you are of your achievement. It's not easy to let go of old money habits. 

Step #3: Review Your Expenses Again – Anything Else to Cut?

You’re now into month 2 of putting everything you would’ve spent on coffees into your brokerage account and it’s time to tighten more. Review your monthly or annual expenses. Is there anything you can cut out or improve? Can you minimize your use of iCloud and get on a cheeper plan? Choose a cheaper phone company, not be a Spotify premium member but live with the ads or only subscribe to one streaming service instead of 3. What are some of the things that you think of as necessary that you can either get cheaper, reduce or unsubscribe to? You know what to do - the cash you've saved need to go into your brokerage account. 

Step #4: Add the Fun Back In.

You’ve now tested your new money habits out for 3 months – if you’re a high achiever you’ve gone 5 months with no lattes and takeout (or whatever your temptation is). You’ve managed your money and transferred all the extra cash you have into your brokerage account. You're prioritizing future cash flow. How much have you been transferring every month?

Is there something that you want to reintroduce? Something you can be extra grateful for, when you buy it once in a while? There might not be anything, but if there’s one or two things that would really increase your happiness significantly you can reintroduce it now. Bring it back.

What you want to do from now on is to make an automated transfer on the very day you get your paycheck. You know how much you were able to save for several months, and you know you can live without most of the mindless stuff you were buying into before. You're paying yourself first and prioritizing future cash flow over a quick fix.

Paying Yourself First

A couple of years ago I read about this concept. I must admit: the very first time I rolled my eyes and scoffed. Later I heard about it again and was interested to try it out but at the same time, I really didn’t believe that it could be done. I believed it was a concept in a book and it wouldn’t be achievable. But the seed had been planted. It took me several years to get there, and somehow it grew in the back of my mind and today it’s achieved. I’m paying myself first. Once you’re there it seems effortless. I hope I can plant this seed for you.

37% of my monthly income goes to investing. 10% for charity and the rest is for necessary expenses, saving up for fun etc. I know that it might be extreme compared to what most people would do. Putting just 10% away for investing is a lot for many people and some of my students who immediately mirrored the concept were able to put 20% aside – that’s an amazing feat!

I don’t necessarily invest immediately but I allocate money to my investing account so they’re ready to invest as soon the opportunity comes. I don’t save the money – they’re for generating additional cash flow through investing.