Pay Yourself First
How many of you read the title of this blog post and said “Oh no! Not that again!”?
If you have ever attended any kind of financial seminar or read any books on finances, you have been told that you should consistently be putting a set amount of your income into savings. We all know that we are supposed to be putting away money every single month. Still, the reality is that an extremely small percentage of us actually do it.
So let’s just be extremely clear – no more beating around the bush . . . If you are not willing to make the commitment to automatically pay yourself first – every, single month without exception – you will NEVER build any kind of financial stability, let alone wealth.
Take a moment and think about all of the people that you pay automatically each month. I understand that as an entrepreneur you may now pay your taxes quarterly or even yearly. But I’m sure you remember having a job where your taxes were automatically removed from your paycheck. Many of us have also set up a variety of our household bills to be paid automatically out of our checking accounts each month. Why do you think the IRS arranges to have your taxes taken out of your earnings before you even see the money? The answer is simply that they recognize this is the only way to ENSURE that they receive what they are owed. You set up your bills to be paid automatically also to ensure that the respective companies receive what they are owed. This eliminates the possibility that you will forget or get too busy to make the necessary payment. We need to change our psychology that has us putting the government and the phone company and our cable provider ahead of ourselves, our financial security and our long term success as small business owners.
I am sure that every person reading this article has thought to themselves, “I’ll start putting some money away as soon as I start earning more.” We as entrepreneurs are especially guilty of this mindset. I also repeatedly hear from students and coaching clients that, because their earnings tend to vary, and because they haven’t yet reach their desired level of success in their small business they can’t figure out how much they can put away each month. It is time to realize that these are just excuses, and as long as we continue to make excuses we will never change our financial picture.
The first step is to open what we call your Wealth Account. The purpose of this account is to build up funds that will ultimately be used to purchase assets. Assets are not stuff – bigger homes, nicer cars or fancy stereo systems – assets are things that you own that increase in value and/or create passive income: investment properties, businesses, stocks, bonds, etc. You must also recognize that your Wealth Account is not an “emergency fund”. You are not taking money from this account for any reason other than to purchase an asset that will make you more money, adding to your financial resources and ability to build success in your small business.
Once your account has been opened, decide how much you are going to put in it each month and immediately arrange to have that amount automatically transferred into your Wealth Account from your checking account. How do you decide what amount? I recommend that you look at your deposits for the last three months and determine what your average monthly earnings have been. Once you have that amount, take 10% and make that the dollar figure you will deposit into your Wealth Account each month. For instance, if your business is earning an average of $2,000 each month, $200 would be a reasonable monthly Wealth Account deposit. If you are in a panic because that number feels too high, start with 5% or $100. Just promise yourself that you will re-evaluate that figure after 3 to 6 months and see if you are comfortable increasing it.
Here is an absolute promise: Once you have gotten this set up to happen automatically, you absolutely will not miss the money. Over and over again clients tell us that they have no idea what they were doing with the one, two or three hundred dollars a month that they obviously used to be spending but that is now going straight into their Wealth Account. As this account builds, you will notice yourself starting to gain interest in learning about possible investments for your money. You will find that you always have an ear out listening for potential financial opportunities. Your excitement and your commitment to building your wealth will grow as you start to realize that you will soon be able to afford that first investment property or purchase shares in a company or business.
We love to hear about the success of our small business readers! Please visit us at http://www.abundanceboundsystem.com and let us know that you have opened your account and what amount you are committed to depositing each month. Putting your promise out there to someone other than yourself will absolutely help you to stick to it.
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By Teemaree, December 28, 2009 @ 5:10 pm
This is wonderful advice! Thank you for laying it out so honestly and practically.