Why Pay Yourself First, Then Needs Before The Wants
The first person to grab a piece of your pay check is yourself. In particular, paying yourself means to meet your savings obligations.
Remember that promise you made to yourself to beef up that savings account? That gets top priority over everything else. Because if you let all the funny expenses that come up every month gobble up your money, you will never be able to pay yourself.
There are the impromptu dinner upgrades from coffee house to restaurant, the need for more gas from more time on the roads, groceries that seem to get more expensive everyday, etc. These are the things that the average person has to contend with.
But that’s not all.
Because there will always be expenses which you did not anticipate. These include things like a vehicle breakdown that renders your gear box useless, a need to service your air-conditioner with a chemical wash due to wear and tear, a sudden illness suffered by your pet dog, etc.
Those are needs you have to spend on. Then there are the wants.
How can you forgive yourself if you don’t allow yourself to enjoy some of the fruits of your labour?
Wants include your urgent need to upgrade your iPhone to the latest model so that you can appreciate it’s glory up close, the weekend getaways you simply need to undertake so as to meet your commitment to an annual travel quota, the vengeful backlash you need to unleash to the retailers during a sale so that they know who they are messing with.
With so many things competing for those dollars and cents in your wallet, how well do you think you will fare if you don’t pay yourself first?
Paying yourself first
A big reason why many people don’t save enough for themselves is because there is no instant gratification. Watching your savings grow by 0.125% is also a little boring and frustrating. You can easily eliminate that boredom by buying some products or services for entertainment.
A good way to sting that mindset of yours is to think about what could happen to your lifestyle in future while closing in on retirement age. Will you be forced to stay in the workforce to earn your living when your lower back is killing you? Will you be able to negotiate a better salary when your productivity levels have reached it’s ceiling? Will you have enough money to do the things you’ve always wanted to do like travel before mortality catches up with you? What if your children you assumed would take care of you financially can’t find a job in the depressing economy?
These are real issues and real problems that we are staring in the face of. You will be living in denial if you do not acknowledge them and fail to plan for the future.
Many of us are not able to see past our own nose. The constant churning and burning of everyday life keeps us so absorbed in the present and immediate future, that we forget that the future can be decades long. Then we spend all our money to enjoy the present while ignoring the future.
If you are someone who has little to no savings, start building a savings habit slowly. Spend some time thinking about the big ticket items you could buy in the near term. It could be a new car or a new house.
They are expensive items which you have to eventually save for. Don’t even think about the availability of “no money down” transactions. Those thing will just drain you of your cash and life. Start making incremental savings towards those personal objectives.
If you are unable to command your hands to deposit those savings, take that power out of your hands. It’s all psychological. You can sign up for one of those salary savings accounts that automatically deduct money from your salary account and deposit into a savings account. You might find it more emotionally manageable this way.
When you treat yourself as a more important creditor to repay rather than the bank, you will be able to slowly make that habit into a priority. Once you are able to commit to that, only then, do you look at the needs.
Needs and wants
Generally, needs can be classified into 3 categories of food, shelter, and clothing. Unless you have a weird uncontrollable fetish, almost all needs can be nicely slotted into one of these 3 categories.
The confusion arises when we as individuals have different takes on what is a want or need. For example, some people can go for just 1 meal a day just so that they can buy that beautiful body-hugging dress in the shop window. That’s a clear example of when the need-want continuum is reversed.
But let’s not try to be too clever here.
The things that are the most important are those that required for basic human survival. These refer to meals to feed your body instead of gourmets that create a party in your mouth, a house that provides an adequate roof over your head and safety from bad guys, and of course, clothing that protects you from the elements while helping you retain your dignity.
There is no real need for expensive dinners that hardly fill your stomach, thousand dollar bedsheets that don’t do a thing when you sleep, or glittering clothing that are meant to make a statement which nobody actually cares about.
First, pay for the things that are indisputable like the mortgage or rent, utility bills, food, etc. only after settling these financial commitments should you consider the wants like holiday travel, branded apparel, cable TV, spa retreats, etc.
There was a time when our parents took care of everything while we innocently discover the world. Once we reach adulthood and have to fend for ourselves, we have to assume the responsibility of doing just that.
Unless you are already making much more money than you can possibly spend, being financially responsible is the only way forward. This means you pay yourself first by allocating a portion of your paycheck into savings, then spend the remainder on needs before consider what wants to indulge yourself in.