“Pay Yourself First” is a popular concept in personal finance, introduced by George Samuel Clason in his famous book, “The Richest Man in Babylon,” in 1926.
When we earn income by selling our time, we essentially work for others, such as landlords, governments, banks, etc. They collect rent, interest, taxes, etc from us.
Its rationale is that you should set aside a certain portion of your income before paying those entities.
It’s a way to compensate yourself for the time and energy you have used working for others.
How Pay Yourself First Works
Wangmo, who works in the civil service, earns Nu.25,000 per month. She saves 10% of it every month for her retirement fund.
She then considers her income as Nu.22,500 and budgets her expenses, ensuring they don’t exceed that amount.
Wangmo manages expenses like rent, taxes, loan interest, groceries etc from Nu.22,500.
So, she pays herself Nu.2,500 each month.
If we assume her salary is fixed and doesn’t earn interest, she will save Nu.30,000 in a year and Nu.300,000 in 10 years.
However, in actual sense, her saving will probably be more, considering investments with good returns can help grow her money faster.
Why Should You Pay Yourself First
When Wangmo’s salary is Nu. 25,000, she is essentially trading 30 days of her life for that amount.
In other words, she sells 30 days of her time for Nu. 25,000.
Let’s say Wangmo worked for 20 years and has consistently paid herself first. It’ll be about Nu.600,000!
If not, she has worked for nothing over the past 20 years. We understand that Wangmo is merely a slave to her job.
Wangmo can take a break, upgrade her qualifications, or get new skills. If she enjoys her job, that’s great.
If not, she can also resign and find a better job. Saving gives this security and freedom.
Build Your Financial Security
When we work for money, we are actually after security and the freedom. Read how money provides freedom to us.
