Pay yourself first

Scenario:
Mukesh and Jivika are close to eliminating debt spending from their lives. They now have a budget, some sound financial habits, and a motivating goal: to get out and stay out of debt. But they don’t want to forever settle for living at a financial sea level; they want to reach the summit. Getting flush is a worthwhile goal, and they’re committed to giving it everything they’ve got, but they wonder how high they can really climb and what’s really possible for them financially. Additionally, they’ve already begun to make plans for moving forward at a rapid pace. Their concerns now have to do with actually acquiring that elusive pinnacle called wealth.

In order to have money, you have to keep some by spending less than you earn. The statistics are amazing — a significant proportion of Trinidadian families are still living from paycheck to paycheck. Most people seem to accept this deficit as inevitable; an income can only be stretched so far, after all. Contrary to what most people think, however, the paycheck-to-paycheck lifestyle is not a symptom of inadequate income; it is a symptom of inadequate wealth-building skills. Furthermore, they most always find that as their income rises, there is no level of income they cannot outspend.

I’d like you to participate in a visual exercise for a moment: picture yourself standing in front of a cash register, about to make a purchase. In your pocket, you hold several blue notes that represent a certain amount of economic power. Maybe these little blue tokens of power have a kryptonic glow to them, and the “Twilight Zone” theme begins to play as you pull them from your pocket. Now picture yourself as you hand over this economic power to a sales clerk, who gives you some product in return; it’s shiny, as well, but is not nearly as remarkable as the glowing economic power you gave in trade. So what’s this about, you ask?

For starters, most of us tend to view products or purchases as something we receive, never really noticing the powerful, glowing object we gave away in exchange. We don’t realise that the clerk is just as eager, if not more so, to make the trade. Why would they be so eager to barter such a shiny product they own? Because CASH IS KING, that’s why. They know the value of a dollar; it’s the consumer who has lost his money senses for the moment. They know they can buy more products, mark them up and sell them, make more money, provide more jobs, and build taller buildings with these little blue glowing certificates of economic power. They understand “opportunity cost.” So they’ll have sales and close-outs, offer you gift wrapping and free samples and coupons, and even advertise with models in order to convince you to give them your economic power. It’s called “perceived value marketing” — you have to feel like you’re getting more than you gave, which is rarely the case. They own vast numbers of retail outlets and buildings. You’re still paying off for your Civic. Get the picture? It’s never a fair trade. They know more than you. They don’t want their product; they want you to have it. Instead, they want your money.

So here’s the point: you hold tremendous power in your wallet. If you use it, you can become rich. If not, they’ll get richer. But, you’ve got to understand that you’re not just getting when you make these trades, you’re also giving something powerful away — your precious economic power. So, you’ve got to begin visualising yourself “trading’ your economic power for “stuff.” You must picture what’s leaving your possession, comprehending this interaction for what it really is: a barter in which each party tries to make the most profitable swap. Now let’s take this a step further.  Instead of seeing yourself walking around bleeding out this economic power to whoever happens to be shaking a shiny car toy in your face, picture yourself in control: you’re walking through an outdoor market and the vendors start to dazzle you with sparkly trinkets, alluring scents, and compelling shell games and magic tricks, but you don’t even stop. They yell their final “bargain” prices at you. Still you keep moving. You admire their neat gizmo, appreciating them like fine art that you don’t have to own. Then, instead of forking over a wad of bills in a trance, you wave politely, smile, wink and quietly move on. They wink back at you as you pass (you’re now kindred in some way), and they turn their attention toward the next passerby.

In order to accumulate wealth, we have to save and invest a portion of our economic power. You know that. So now, with these visualising tools at your disposal — which you can use to shed some light on the manipulations you’ll encounter as you struggle to hold on to some of your precious financial resource — let’s get to the heart of the matter. Each week or month, when you sit down to pay bills, you effectively divvy up your financial pie: a large piece goes for rent, another for auto and food expense, a sliver for utilities, and so on. Now, I want you to picture yourself in front of this whole monetary pie, freshly baked and soon to be completely gone. OK. Now, the very first piece of that pie is cut and it goes onto your plate. Before you even begin to decide who gets what piece, you’re going to sneak yourself a small piece — about 10% of the total — and store it away for safekeeping. I’m talking about saving and investing, of course. See, what happens to most of us is that we pay all of our obligations, buy a few things we want (not need), then — if there’s any “pie” left over — we save it for ourselves. But we’ve been so accustomed to seeing this “sharing” as a form of “keeping” — that is, we’ve been conditioned into believing that the products and services we “get” are good enough reciprocation — that we don’t even consider ourselves as we slice up our economic pie. So, at the end of the month, we’ve paid the mortgage and the cable bill but kept nothing for ourselves: nothing “saved” to feed our hunger for wealth.

The sum of the wealth concept I’m trying to illustrate is called PAY YOURSELF FIRST. It says that we must, must, must consider ourselves an economic priority and make ourselves the first beneficiary of our hard work. Again, buying things is not a reward, it’s a swap. (Understand this please.) The rule of thumb is 10%. Right off the top, pay yourself first at least one-tenth of all your earnings and set it aside for investments, for building your wealth. If you have to, make yourself an invoice (to you, for investments) and stack it on top of the pile of bills you’re about to pay. That way, you won’t forget to pay yourself first and you’ll be constantly reminding yourself that you, too, are an important, deserving recipient of your economic power.

IMPORTANT POINT:  No matter what your level of income, you can implement this strategy today. Don’t fall into the trap of paying everyone else who’ll lay a claim to your resources, thinking that you’ll catch up (your savings) when you get caught up (your bills). It’s a disastrous mistake that will ensure that you never, ever accumulate any savings. The only commitment that really matters, in the long run, is the one you make to yourself. You’ll still be able to pay your bills. After all, didn’t they always get paid when you were earning even less income?