“Pay yourself first” is an investor mentality and phrase popular in personal finance and retirement-planning literature. In wealthdojo, I tend to focus more on the mentality of wealth management. This is because there are many ways and strategies to succeed but it all starts with the mindset.
One of my favourite example is about losing weight. The secret of losing weight has been around for the longest of time. We just to exercise more and eat less. But yet, why are millions of people in the world overweight still? It has all got to do with the mindset.
What is pay yourself first?
The key to paying yourself first is in these few elements.
Pay yourself first is an effective way to ensure you continue making your chosen savings contributions month after month. It removes the temptation to skip a contribution and spend the funds on expenses other than savings. Regular, consistent savings contributions go a long way toward building a long-term retirement nest.
To put it simply, it is a commitment to set aside money on a regular (best if it is automatic) basis for a saving goal.
Why does pay yourself first works?
As it is regular and automatic, our mind does a few of the followings. These are real life experience of my clients and friends who have decided to pay themselves first.
“I forgot about it”
Thomas (names have been changed) has been doing a typical endowment plan for the last 20 years. Just before his retirement, his endowment matured and I was privileged to give him the good news. He was presently surprised that he has amassed $100K just by putting aside a sum of money every month. Nonchalantly, he just said he forgot about it as it is automatic.
“I don’t feel the pain from saving”
Sally likes to shop. COVID (Here’s a special message during COVID19) or not, she will browse through the internet for things to buy. Every month, she have to spend a conscious effect to save and it tears her apart as she really does enjoys shopping. (Read more: Our best ways to manage spending) After doing an automatic saving system, she feels that she has shopped for retirement and don’t feel the pain of saving anymore.
In these 2 real life stories, pay yourself first works because the pain of saving was taken away. Building savings is a powerful motivator. Nothing beats seeing your balance grow. While money may not buy happiness, it can provide peace of mind. People with fat emergency funds tend to have fewer emergencies than those with lower or zero balances.
How do you pay yourself first?
We recommend 2 simple ways of doing it. Both of which is very powerful and regular. We recommend doing a combination of the 2 in whichever amount that you prefer.
Saving Goals With Your Bank.
The bank that I personally used is OCBC. This is because OCBC has this powerful tool called “Saving Goal”. You can set the regular amount you want to save and viola, every month, your money will be “kept” in this goal that is untouchable until you say so. The benefit is that it is automatic. The downside is that you can make adjustments to it easily. This means that when a temptation comes along, you might withdraw from this goal.
Saving Goal With Your Insurer
The advantage of this is that it is regular, consistent and it punishes you if you withdraw early. It is one of the most powerful way to save towards a goal. The disadvantage is that the time period is long and you will not be seeing the money in a while.
Take your pick. I strongly suggest any of these will be fine.
No one will care about your money as much as you do. Before you invest in any company or popular investment opportunity, be sure to do your own due diligence. If you wish to learn more about investing, I hope to nurture genuine relationships with all of my readers. Please feel free to contact me on my Instagram (@chengkokoh) or Facebook Page or my Telegram Channel! Or subscribe to our newsletter now!