Many of you would have heard of this before, however, for those who have not, Pay Yourself First is a great way of creating wealth for you in the long run. Paying yourself first is a powerful strategy that can transform your financial life and set you on the path to long-term financial success.
By prioritising saving (and investing), automating SIP contributions, and staying disciplined in your financial habits, you can build wealth steadily over time and achieve your financial goals. Invariably this discipline helps you in other aspects of your life too!
What it means is that when you get your salary, PAY YOURSELF before you pay anyone else. Step One is of course to set your goals and when you get the salary credited make sure that all the SIPs –for buying a house, a car, marriage, retirement etc., get debited before you are tempted to spend it on something else.
There are huge advantages of paying yourself first –
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You avoid the temptation of spending the money,
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You avoid procrastination –let me invest next week, or after the weekend or any such excuse
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The SIPs have been thought out and now it is just the execution
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You are teaching your ‘muscle’ to say save
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Saving money is a difficult art to learn – and you are on your way to learn it
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Money starts compounding as soon as you convert that saving to investing.
It is easier to save and learn to invest when you are young, unmarried and not supporting anyone. So if you start learning about saving and investing, the better it is for you in the long run.
How should you go about doing this?
First set clear goals and identify the SIP for each one of the goals. When you are 22 years of age your goals could be – buying a bike in 2 years, buying a house in 10 years, marriage in 8 years, retirement in 36 years, etc. When you automate I10,000 for each of these goals and start 4 SIPs of I10,000 each, on the due date the amount is invested in those pre-chosen 4 mutual fund schemes. This means you have I40,000 less available for your immediate day to day expenses.
This automation helps – to stop or postpone an SIP is boring and painful, so most people do not interrupt it.
Review and make alterations – If the market has suddenly done very well you may be able to buy the bike in say 19 months instead of 24. If that happens you will have
I10,000 available for other goals. If you don’t have any immediate need, just increase the amount for retirement. You can always redirect it for some other goals, in case something arose! In case the market does not do too well, your bike may be 28 months away instead of 24 as planned. Teaching the body and mind to wait for 4 more months is surely good for your ‘saying No’ muscle!
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