As entrepreneurs, creatives and small business owners, we all have different financial goals and dreams we want to achieve. However, it can be challenging to know where to start, especially when it comes to managing our money effectively. One of the most important concepts we can learn is the idea of paying ourselves first. This principle is not new, and it has been around for a long time. It is famously discussed in the book “The Richest Man in Babylon” by George S. Clason. Here we look at what this concept means and how it can help you achieve financial freedom.

What is Paying Yourself First?

Paying yourself first means that before you spend money on anything else, you should set aside a portion of your income for yourself. This can be done in a few ways, such as saving for your retirement, setting aside money for your emergency fund, or investing in your business. The idea behind this concept is that you should prioritize your financial goals before spending money on other expenses.

Why Should You Pay Yourself First?

The reason why paying yourself first is so important is that it helps you build wealth over time. By setting aside money for your future, you can ensure that you are prepared for any unexpected expenses that may come up. Additionally, it can help you reach your financial goals faster, whether that be saving for a down payment on a house or starting your own business.

Steps to Pay Yourself First

Now that we understand what paying yourself first means let’s take a look at how to implement this concept in our lives.

Here are the steps to pay yourself first, including the concept of the tenth:

Determine Your Financial Goals

The first step to paying yourself first is to determine your financial goals. These goals should be long-term, such as building wealth, preparing for retirement, or investing in your business.

Create a Budget

Once you have determined your financial goals, the next step is to create a budget. This will help you track your income and expenses and identify areas where you can cut back. When creating your budget, make sure to allocate at least a tenth of your income for your financial goals.

Automate Your Savings

One of the easiest ways to pay yourself first is to automate your savings. This means setting up a direct deposit from your paycheck into your investment account. By doing this, you won’t have to worry about manually transferring money each month, and you’ll be less likely to spend the money on other expenses.

Invest in Your Future

The final step is to invest in your future. This can be done through a variety of investment vehicles, such as stocks, bonds, or real estate. The important thing is to make sure that your investments align with your financial goals and that you are taking a long-term approach to building wealth.

Examples

Let’s take a look at an example to see how paying yourself first works in practice. Suppose you earn £5,000 per month, and your financial goal is to build wealth for your future. Here’s how you could implement paying yourself first:

• Determine your financial goal: Build wealth for your future.
• Create a budget: Allocate at least a tenth or £500 per month for your investments.
• Automate your savings: Set up a direct deposit of £500 per month into your investment account.
• Invest in your future: Choose investment vehicles that align with your financial goals and take a long-term approach to building wealth.

Paying yourself first is an essential concept to build wealth and achieve financial freedom. By allocating a tenth or 10% of your income for yourself, specifically for investing in the future and growing your wealth, you can ensure that you are building a solid financial foundation and preparing for your future. Remember to create a budget, automate your savings, and choose investments that align with your financial goals.

Check out some of our resources to help you with your finances