What does 'Paying Yourself First' mean?

It means that you simply set aside a certain amount of money each month that you will not touch (pay yourself), even before you pay your bills and expenses (pay others).

1. Decide what percent of your fortnightly salary or income you want to set aside. When you get your pay check, the very first thing you do is to put this amount aside, hence the term 'pay yourself first'.

The percentage of money you set aside will differ from person to person and will depend on the comfort level and wealth target you wish to achieve. For most people, we recommend you set aside 10% - 15% of your income. You can increase the money you set aside, but again, this will depend on your comfort level, and your wealth target.

2. Decide what you want to do with the money that has been set aside. Many will simply put the amount into their saving account. However, the idea of paying yourself first is to use it for your wealth building.

You should be looking into investing the funds instead of just saving them. Saving alone will not help you to reach your financial success. Let the money earn you more money by investing it. Consult with your financial planner to decide the kind of investment portfolio that suits you based on your current financial circumstances and goals.

You can also set up an automatic withdraw from your normal savings bank account to your account that you use for investments. This is when money is automatically taken out of your savings or checking account each fortnight/month and put into your investment. This way, it does not rely on your ability to set aside a certain amount each month, but it will automatically take it out for you and it is also easy once you realize how you do not miss the money.

3. Pay off your bills.

4. Live on whatever is left over from your pay check. It does not however imply that you need to use up every single cents of what is left. If you have surplus, then good for you. If you have a substantial surplus, then go back and re-adjust your investment amount. For example, you can increase your monthly set-aside amount for investment, and let it generate more money for you. Try to limit your credit card debt.

As you start to build assets, you will see that the income from your assets will allow you to pay for your personal expenses and expand your means for you to live the lifestyle you want.

If you would like more information about the concept of paying yourself first or need help to get started, speak to one of the financial planners at Intellichoice today on 1300 55 10 45.