last week i posted my review of the classic personal money management book, the richest man in babylon by george s. clason. i covered the richest man arkad’s 7 recommended ‘cures’ for ‘a lean purse’.

i thought it would be fun and enlightening for myself (and hopefully also for you, the reader!) to go over each of his cures over the next several weeks while addressing the following questions:

1. have i been following his advice, applying each cure to my own ‘lean purse’?
2. if so, how have i been doing so? how do i perceive my progress (or lack thereof) ?
   
3. how might i improve in my approach?

today, we reflect on his first lesson:

Pay Yourself First !

what does it mean to ‘pay yourself first’ ?

according to arkad, this means that for any and all income that you receive, 10% of the income will always be kept by you, saved for you by you, given to you by you — in other words, you ‘pay yourself first’.

only after you have put aside that 10% for yourself do you turn to tend to your various expenses, or, paying others.

arkad points out that ‘paying others’ is essentially what we are mostly doing rather than paying ourselves first. we mistakenly believe that we are, in fact, paying ourselves first — by the very act of earning the income ourselves through our jobs, and then receiving our paychecks. however, most of us tend to handle our money in the following order:

1. pay off any and all expenses as needed or desired, THEN
2. see if anything is leftover afterwards for ourselves to save

in paying off our expenses, arkad says that we pay others first — pay the utility company for our water, power, phones; pay the banks for our mortgages or the landlords our rent; pay the department store for our clothes; pay the cafe owner for our daily javas.

when i think about this order of payments, i become momentarily distressed! i don’t like this notion of working 40 +/- hours a week of my life in order to ‘pay other people’ first. what about me? don’t i deserve to be paid too? and not just paid at all, but paid for sure? don’t you think you deserve your hard-earned money as well?

fortunately, i am happy to say that i have in fact been applying this cure:

1. a few months ago, i set up automated pre-tax workplace retirement savings contributions of a little more than 10% of every biweekly paycheck. (before that, i had been contributing about 5% for perhaps 9 months.) this is a simple IRA with t rowe price.
2. after taxes, i also have another 5% (of gross) taken out of the first check of the month (1 of 2) that goes to my emergency savings account with hsbc.
3. from the second check of the month (mid-month), i have yet another 5% taken out for my 529 college savings account also with t rowe price.

this comes out to a total of $850 a month towards my savings!

so my post-tax paycheck reflects an overall 20% reduction bi-weekly. afterwards, i still have enough according to the numbers to ‘pay everyone else’:

• my monthly rent/utilities/groceries — the SO

• college loans payment, credit loan payment — the government, bank

• gas for motorcycle — the gas station company

• and misc expenses for coffee, dining out, crochet supplies, etc. — retailers

and that’s really all i ‘need’ for now. i am content. i am not wildly happy or thrilled, so to speak, but i am content. why?

1. i am making ends meet and then a little
2. i am living within my means
3. i am holding myself accountable to be responsible to pay for past financial mistakes (ie, debt).

granted, i have only become truly serious with respect to my finances several months ago, and so this automated setup is relatively new. however, i am determined to stick to this arrangement and sound financial habits.

one thing to add to my to do list: set up a direct deposit if possible, for sending money to my emergency and 529 funds directly from work, rather than moving money myself (albeit automated) after the post-tax paycheck arrives via direct deposit in my checking account.

in about 6 months, i hope to increase my savings to 25% of my gross income.

my reactions: i feel stronger, better, hopeful, and excited about my financial future.

i heartily endorse this lesson.

Arkad says Pay Yourself First!

Pay yourself 10% of all income that you earn, before you pay anyone else!

stay tuned for next time, when we discuss babylon cure #2: watching our expenditures.

how about you? are you paying yourself first?

if so, what’s your strategy? if not, why not, and when might you begin?

any comments, feedback on this concept?