How to Start Paying Yourself First BEFORE Your Bills
It's time to put yourself before your bills
As the month is coming to a close, I wanted to step out of my usual format of my newsletter and drop this reminder instead.
You probably grew up used to the idea of paying bills or buying things. Occasionally, you treat yourself to something special and that’s about how far it goes.
But guess what? All this while you’ve been neglecting yourself.
How?
You might say “I pay my bills and I take myself out once in a while. I haven’t been neglecting myself.”
But when was the last time you acknowledged yourself for all your hard work? And how is it paying you back in the long-term?
Yes, buying yourself something special sounds good, but that will only satisfy you in the short term.
You owe it to yourself to live a good life and to have a financially secure future.
Although it’s nice to treat yourself once in a while, it does nothing to build wealth for you.
That’s where the concept of “Paying Yourself” comes in.
In this newsletter you’ll learn:
What it means to pay yourself and how that looks like
The easiest way to start paying yourself
How to keep paying yourself even if you get paid less than expected or at different times during the month
But in return my challenge to you is to take a screenshot of the part of this newsletter that you found insightful and tag me @mary_imasuen (on Twitter or Instagram) with the hashtag #RelishAbundance.
Deal?
For those reading my newsletter for the first time, I’m Mary Victoria and I write about personal finance and fintech.
What does Paying Yourself actually mean?
Paying Yourself means setting aside money for your financial goals before you spend the money for other things.
So setting aside money to buy a new phone wouldn’t amount to paying yourself. And the reason is simple: a new phone isn’t going to add to your financial goals.
Some people will say that buying a new phone will help them meet their financial goals. Although you can use your phone to improve your financial condition (assuming you’re using it for business), the money you spend on buying the phone makes it a business investment. You’re not paying yourself.
So what does paying yourself look like?
It’s simple: saving and investing. This is what’s going to grow your wealth in the long-term.
There are different ways savings and investing plays out.
Savings could look like setting aside a fixed amount of money on a periodic basis (daily, weekly, or monthly).
You can do this manually by putting your money in your savings apps yourself. Or you can do it automatically by enabling the settings that allows your savings apps to withdraw the money from your bank account automatically.
The risk involved in saving is low but so is the returns in terms of interest.
Investing is more versatile. You can invest in:
Dollars or any other currency that’s stronger than your local currency
Stocks or shares of companies
Mutual funds
Cryptocurrency
Real estate
Bonds and treasury bills
Depending on the kind of investment apps you’re using you can invest automatically as well, but most times it’s done manually.
Unlike saving, the risk involved in investing ranges between medium to high risk, but the returns are a lot higher.
Typically, you should save and invest (not choose one over the other). And when it comes to investing, you should have a good mix of the ones above. That’s how you diversify your portfolio.
Just as different as each of those types of investments are, so is their performance and rate of returns. So diversifying your investments helps to cushion the effect of an investment that isn’t doing so well.
For example, let’s say you’re investing in cryptocurrency, dollar and mutual funds. The time when cryptocurrency isn’t doing so well, the dollar and your mutual funds would help cushion the effect of the drop in value. That way you’ll still be getting returns even if one of your investments isn’t doing so well.
The situation would be different if you only invested in one form of investment. The day that investment goes down, so does your whole portfolio.
The easiest way to start paying yourself first
Over the years I learned that the easiest way to start paying yourself is to consciously plan for your next payday. And I don’t just mean setting a reminder to pay yourself as soon as you receive money.
I mean…
having a clear figure or percentage of how much you’re going to save or invest
knowing the exact investments you’re going to make
knowing the next step you’ll take when your savings and investments mature (Will you reinvest your investments or extend your savings plan? Will you redistribute the returns you make on your savings or investments and how?)
I typically consider all this a week before my monthly payments come in and then apply same to the next set of payments that will come in within the following month.
The more you do this the more you start to have a fixed pattern of how you pay yourself.
Here’s an illustration of how I plan to pay myself:
5% of every payment that comes in goes to my emergency fund (even if I earn N1000, 5% of that money will go into the fund)
At least one client payment goes into Risevest, half of which is split among my 4 investment plans (2 real estate, 1 fixed income, and 1 stock plan). The other half stays in my Risevest wallet.
(I wrote about how I “dumped” $400 in Risevest. You can read it here.)At least $120 goes to cryptocurrencies (specifically Bitcoin, ADA, and Matic)
(If you’re thinking of adding more decentralized investment options to your portfolio, then you’d want to listen to this episode.)At least $100 goes to Real Estate Investment Trusts (REITs) (and the goal is to always by at least one full share of one of the REITs and fractional shares for the rest)
At least $150 goes to my dividend shares with the aim of completing at least 2 full shares and fractional shares for the rest.
At least N20,000 goes into reserve.
Any extra money after the bills, upkeep, and miscellaneous, goes into overflow savings.
And I have this plan with me to guide me on what to do as soon as money comes in.
Of course, you don’t have to follow my plan. You should create one that works for you. What’s important is that you have some sort of game plan to pay yourself. And it needs to be as detailed as possible.
Now that we’re nearing the end of the month and getting close to pay day, this is the best time to prepare a detailed game plan to pay yourself. And if you have a game plan already, you should review it before you get paid.
The purpose behind reviewing your plan at least a week before pay day is to:
Remind you of the actions you must take as soon as money comes in
See how you can improve your plan and get specific on what exactly you’ll invest in or how you’ll save
Find ways you can expand your savings or investment or introduce more diversity in your portfolio. (In my earlier plans, I didn’t include other cryptocurrencies aside from Bitcoin. I also didn’t have plans for REITs. So this month’s plan is more focused on further diversifying my portfolio)
But what if the payment I receive is below what I planned?
The plan doesn’t change but the figures could.
If you set your plans according to percentages, then you don’t have to change your plan at all. The amount you pay yourself will vary with the percentage.
For example, even if I earn less for the month, that 5% I set for my emergency fund will not change. That’s because the 5% will vary the amount of money I’ll put in my emergency fund.
But if you set a fixed figure, that may have to change with how much to earn. But it must not be removed from the list.
Let’s say you planned to invest $50 into shares. But you weren’t paid what you expected and you’re only able to afford only $10 for the month, then put it into shares like you planned.
What if I don’t receive all my payment at the end of the month but at different times of the month?
This may happen if you have side hustles outside your 9-to-5 job.
That’s where adding more detail comes to play.
Let’s say you have a 5 point plan to pay yourself and you have a side hustle and a 9-to-5 job. You can write that Points 1-3 will be done when you receive your salary, while Points 4-5 will be done when you get paid from your side hustle.
Are you ready to start paying yourself?
It might feel a little scary to embark on this journey. I know I was scared.
More often than not, paying yourself is overshadowed by paying bills. But you cannot underestimate the importance of paying yourself and building your wealth.
I hope that as you get close to pay day, you have a clear plan and start paying yourself first.
Keep shining,
Mary Victoria 💋
P.S.
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