FINANCES : Pay yourself first

I came across an interesting anecdote on about.com, that “Money, like water, expands to fill the container in which it is placed. If you lack an objective set of financial goals for your life, you probably reach the end of each month and find yourself broke. You vow that next month will be different, but it never is.” It can never be further from the truth. So many of us avoid saving for the future because we do not have enough money to save. Even if everyone got a tenfold pay increase, they will experience a tenfold expense increase. They will want better cars, bigger houses, finer clothes, and more exotic food which all means more expenses. It is a good idea to increase your income so that you save the extra money but all good savers have had to learn and use the principle of ‘Pay Yourself First.’ This statement comes from George S. Clason’s 1962 financial advice classic called The Richest Man in Babylon, published in 1962. When we earn our salaries or some other income, we rush to pay off debts and bills and forget that the first person you should pay is the one who made that money, and that is yourself. You pay yourself by making a predetermined or automatic deduction from your income and send it directly to your savings. It means that whenever you earn any money, you should put aside a certain fraction of that into your savings before you decide how many bills or debts you are going to pay. Instead, most of us do it the other way round. We want to clear every financial commitment first and hope that something will be left over for us to save. Take a few lessons from the government. The government knows that if it tells you to pay your taxes after receiving your gross salary, it may never live to see that money, not with all those, your needs. So it simply subtracts everything from you salary before you get it. Imagine if that was not the case, how may tax defaulters Rwanda Revenue Authority would have to contend with. In saving, you have to make sure that you take away the amount to be saved before you start thinking about how your clothes are old, or how your car needs to be repaired. In The Richest Man in Babylon, the main character, Arkad found the road to wealth when he kept and invested for himself one-tenth of all he earned and by that he moved form one of the poorest kids to the richest man in Babylon. Begin by saving a small amount of your income, even one percent and grow it slowly as you become used to doing without that portion of your money while making spending plans. If you find it hard to do ask your bank to automatically deduct a certain percentage and send it to your savings account in which you have a limited number of withdrawals per year. The money on the savings account can only be invested so that it can earn more money, not spent. Arkad found the road to wealth when he decided that “a part of all I earned was mine to keep.” Just imagine, you work all year and at the need of the twelve months you have nothing to show of it because, your landlord, the supermarket, Electrogaz etc conspired to take away all your hard earned money – no, nobody conspired against you because they are only getting paid for the work they did for you. You have nothing to show for your one year efforts because you forgot to pay yourself first. kelviod@yahoo.com

Lifestyle

FINANCES : Pay yourself first