Pay Yourself First

“How you treat your money determines how your money treats you.”

My mum mentioned that to me once and it has stuck ever since. I find that our attitude towards money comes from a deep-rooted habit of tending to every other thing and person before ourselves- at the expense of our comfort or well-being.

When I was a teenager in high school, I loved cooking. I loved it so much I took a course in it. I would go for these culinary exams that went on for hours- four or six sometimes. You had to prepare a three-course meal- an appetizer, the main dish and dessert.

Although it required a lot of planning, I enjoyed it. All I could think about was the kind of starters I would prepare. I would imagine what dish to make and what dessert would complement it. It took a lot of effort and resources. I remember going to several grocery stores to find spices and ingredients to make a perfect dish. It mattered to me that I win and get the best grades obtainable. And I often did.

After standing for hours at these exams, I was often rewarded with great scores and wonderful remarks from the judges. My parents and siblings (I come from a family of seven- five kids and two parents) were also excited to have a taste of whatever delicacy I’d prepared. After getting back from such exams, I was usually pretty exhausted, so I would have a shower and take a nap, while my family helped themselves to the food I brought home, leaving nothing for me. This made me upset because after all the work and effort, it would have been nice to enjoy some of my food.

It happened again and again and far more than I could count, until my mother came up with a plan. She would take out a sizeable portion of the food for me as soon as I returned home and hide it from the others. That way, when I came back to the dining area after a much-needed shower and nap, I had some food to eat.

Now, you are probably wondering what this experience has to do with your personal finances. Think for a moment about how hard you work and how much of yourself you give to your job. But once that pay-check comes in, who gets rewarded first?

Your landlord- because you must pay the rent. You have bills to settle. You need to get groceries. That pipe in the kitchen needs to be fixed too. Before you know it, all that money is gone. And like my dishes, you have nothing left for yourself. All that labour and hustle was for Netflix and Amazon, the government, and your family.

That’s why you need to ‘pay yourself first’. When you pay yourself first, you are prioritising your long-term financial well-being. Rather than focusing only on immediate needs, such as bills or entertainment, you pay your future self by saving before you do any other spending.

'Paying yourself first is prioritising your long-term financial well-being.'

Your expenses fall into two categories: mandatory expenses and discretionary expenses.

Mandatory expenses: These are bills that must be paid, such as rent and electricity; things that you need to live healthily, such as food or medicine; and things that you need to do your work, such as a uniform or internet connection.

Discretionary expenses: These are variable costs that aren’t mandatory, such as entertainment, clothing, travel, home décor, new electronics, eating out, TV streaming accounts, or gym memberships.

When you only save what is left at the end of the month, you are putting savings in the second category: it is a discretionary expense that varies every time. Sometimes, depending on your other spending habits, it might not happen at all. If you think about your savings only after everything else is paid for, then it’s easy to end up with nothing left over to save.

But, if you pay into your savings and long-term planning accounts first, however, saving becomes a mandatory expense. You are treating saving like any other bill that must be paid, no matter what. And by paying it first, you are deciding that your long-term financial well-being is the most important “bill” you pay.

How do you start paying yourself first?

1. Start small. A minimum of 10% from your disposable income should get you started. But I would recommend 20%. Although, it is important to be realistic. And while this is for your own good, it should not leave you unable to attend to other bills. But, you would be surprised how paying yourself first reduces impulsive spending. You would find yourself reviewing your budget and allocating expenses to the most important things.

2. Secondly you must set a target. So, say 1000 Francs, since we live in Switzerland. If you save two hundred francs each month, in five months with consistency, you’d have reached your target. And there is something about reaching a goal that fills you with euphoria and spurs you to achieve even more.

3. Automating your savings is another great way to get started. You can set up your deposit in such a way that every month on a preferred date, a certain amount is put away for savings. If you get paid on the 25th, you could set 26th as the preferred date. So, a fixed percentage is subtracted from your disposable income every month.

While you must tend to all your financial obligations, planning for your future must not take the back seat.