Pay Yourself First

Robyn of Get Out of Credit Card Debt has started a discussion in her blog about Paying Yourself. As far as I can remember, I first encountered the phrase Pay Yourself First from the E-Myth, which is basically on the premise that a new entrepreneur should consider the amount that he should be paying himself to show whether or not the business is actually earning or not. The same concept has started to be applied to personal finance along the concept of setting aside first, often automatically, a portion of what one receive as income or salary. This automatic setting aside of money as savings is also being advocated by David Bach of the Finish Rich fame. And like most things that has been passed around, it pays to reconsider again what does the phrase Pay Yourself First really mean.

1. Is Paying Yourself First (PYF) any different from savings? Essentially it's the same thing. However, the emphasis here is on "first". Which means that saving should be prioritized over any expense.

2. Is PYF for everybody? Obviously, if you are spending more than earning, then it won't work. But the more important thing to realize is that this is a goal that one should strive to one day achieve. Start here to get your finances in order.

3. How much should you pay yourself? You can always start somewhere, and slowly build up the amount you pay yourself over time. It can be as painless as starting on a very small amount, or you can start off with an amount where you can feel the "pinch" on you, reminding you that getting into good financial health does not come without sacrifice. To make the amount you decide to pay yourself more realistic, you may consider the amount of disposable income you have after you have taken out your expenses.

That's it for now. Do share your thoughts on this topic and help enlighten all of us.