In this article, I’ll be discussing one of the best ways to save money, which is paying yourself first. This timeless money-saving principle has been used since the early ages of mankind. So what does paying yourself first means? I will share with you a quote from the classic personal finance book titled “The Richest Man in Babylon” by George S. Clason which says:
“I found the road to wealth when I decided that a part of all I earned was mine to keep.”
The beauty with paying yourself first is that it removes the pain of saving. You don’t have to be conscious of what you are spending on and you don’t have to limit the amount of money you spend because you already kept some money for your savings right after you received your salary. The quote above simply tells us that whenever we receive money, we should immediately take away a part of it and put it in our savings. In other words, we should pay ourselves first.
The ultimate formula for creating wealth.
After receiving our salaries, most of us would spend it right away on our needs and wants and the money that was left would go to our savings. But let’s admit it, most of the time there is nothing left. So the right way to save is that after we receive our salaries, we should immediately keep a portion of it as our savings and what was left would be the amount that we shall spend for our monthly and daily expenses.
So how many should we need to save? For me, it’s 30% of my salary. For example, if I’m receiving a salary of P10,000 per month, I would immediately keep P3,000 as my savings and use the remaining P7,000 for my everyday expenses. In my case, the 70% is enough to cover my monthly expenses. But for some of us, 70% is too big as they have many important expenses like the tuition fees of their children, the mortgage of their house, medical bills of a sick relative, etc. In that case, they can always start with 10% of their income and then they can gradually build their way up to 30%.
How about if you have debts?
You may ask me “Alvin, how can I save if I have credit card debts?” For me, paying your debts should become a part of your budget. You can also apply the pay yourself first principle in paying your debts. I just said above that you should save at least 10% of your income initially, but afterward, your target should become 30%. But if you have debts, you can set aside 10% of your income to your savings and then another 10% to 20% should go to paying your debts. Your savings and payment for your debts should be your first “expense” and then you can use the rest of your salary for your daily expenses.
I am encouraging everyone that you should still save money even if your priority is to pay your debts. It is because when you needed money for an emergency and you don’t have savings, you will be forced to take up another loan which will increase your debt even more. So for me, the most effective way is to save money and pay your debts at the same time. It is hard but it is also doable if we have a frugal mindset.
The frugal mindset.
It is good to hear the word “frugal” in English but in Filipino or Tagalog, it is often associated with the negative words “kuripot” or “barat.” For me, we should change our mindset about being frugal. So when you’re being frugal, it is better to think of yourself in Tagalog as “matipid.” It is time for you to see frugality as something positive so you would be more encouraged to adopt that trait.
If you’d like to pursue financial freedom or if you’d like to become rich, the very first thing that you need to do is to get into the habit of saving. You can save money by paying yourself first and you should be consistent at doing that. Once you are able to save money, the next thing that you can do is to find ways to earn more income or you can make your savings grow by investing it in the Philippine stock market.
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