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Episode 2969:
Ryan H Law highlights the transformative power of "paying yourself first," a foundational personal finance principle. By automating savings through strategies like 401(k) contributions, Roth IRAs, or direct deposits into savings accounts, you can build long-term wealth effortlessly. This approach fosters discipline and prioritizes future financial security over impulsive spending.
Read along with the original article(s) here: https://ryanhlaw.com/how-to-pay-yourself-first/ & https://ryanhlaw.com/automate-your-finances/
Quotes to ponder:
"Poor people spend their money and save what’s left, while rich people save their money then spend what’s left."
"A part of all I earn is mine to keep."
"Paying yourself first is all about deploying the gap: maybe some goes to beefing up your emergency fund, and another portion gets thrown at debt."
Episode references:
Policygenius: https://www.policygenius.com
The Richest Man in Babylon: https://www.amazon.com/Richest-Man-Babylon-George-Clason/dp/1505339111
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[00:00:30] Have you ever noticed how a calm mind can really set the stage for a good night's sleep? That's the idea behind our new podcast, Good Sleep. Greg, our host from Optimal Relationships Daily, is here to help ease you into a peaceful night's rest with some positive affirmations. And these affirmations aren't just comforting. They can help ease anxiety and nurture positive thoughts, setting you up for true good sleep. So press play on Good Sleep tonight, because a good sleep is a good sleep.
[00:01:00] Good tomorrow starts with a good night's sleep. Just search for good sleep in your podcast app, and be sure to pick the one from Optimal Living Daily. This is Optimal Finance Daily, How to Pay Yourself First, by Ryan H. Law of RyanH. Law.com.
[00:01:19] Business philosopher Jim Rohn taught that, quote, poor people spend their money and save what's left, while rich people save their money then spend what's left, end quote.
[00:01:31] It's familiar advice that we've all heard. Pay yourself first. Pay yourself first is one of the most repeated phrases about personal finances.
[00:01:41] One of my favorite financial books, The Richest Man in Babylon, which was originally published in 1926, repeats over and over the idea that, quote,
[00:01:54] a part of all I earn is mine to keep, end quote. But how do we actually do this? Today's post will give you a few ideas to begin to implement this.
[00:02:06] Number one, contribute to your 401k. If you have a 401k or similar plan available at work, this is one of the easiest ways to pay yourself first.
[00:02:18] Not only that, but in most cases, this contribution will be pre-tax and will lower your tax bill.
[00:02:24] If you have a match from your employer, you aren't just paying yourself first. You are, in many cases, at least doubling your savings.
[00:02:33] If you contribute 3% and your employer matches that, you're actually saving 6%.
[00:02:40] Number two, contribute to a Roth IRA. If you're eligible to contribute to a Roth IRA, it can be a great investment.
[00:02:49] Many mutual fund companies, such as Vanguard, T. Rowe Price, and Fidelity, will allow you to set up an automatic transfer from your paycheck or bank account.
[00:03:00] You can often start with as little as $25 a month.
[00:03:04] Number three, have a set amount, ideally 10%, transferred out of your checking account and deposited in a savings account.
[00:03:14] If your bank doesn't allow this option, check with your employer.
[00:03:18] In most cases, your employer will allow you a certain amount or a certain percentage to go to different accounts.
[00:03:25] You can direct 10% to go to savings and the remaining amount to go to your primary checking account.
[00:03:32] If 10% is too much, start smaller. Start with 1% or half of 1%.
[00:03:42] Automate Your Finances by Ryan H. Law of RyanHLaw.com
[00:03:49] A good part of financial success is setting up systems that will ensure success.
[00:03:55] Something simple you can do is automate a few key things.
[00:04:00] Automating your finances is one of those systems that will help you be successful.
[00:04:05] Here are some examples.
[00:04:07] Number one, have your paycheck direct deposited.
[00:04:10] Many employers default to direct deposit.
[00:04:14] You have to put in a special request to get a paper check.
[00:04:18] Direct deposit is generally available in your account the same day the deposit is made,
[00:04:23] and it costs less in time for both you and your employer.
[00:04:27] If your employer doesn't offer this service, encourage them to set it up.
[00:04:31] With many accounting software packages such as QuickBooks, direct deposit is included as a free add-on.
[00:04:39] Number two, set up as many of your bills as possible on automatic bill pay.
[00:04:45] There are two ways to do this.
[00:04:47] Either set up the bill to get paid directly out of your account each month,
[00:04:52] generally charged to a credit or debit card,
[00:04:54] or you can pay through your bank's online bill pay.
[00:04:57] We pay all of our regular monthly bills, such as the electric and gas bill,
[00:05:03] Netflix, our mortgage, and others, by having the payment charged to our debit card.
[00:05:08] It pulls out the same amount each month, and I can set it up once and forget it.
[00:05:13] It also ensures that we will never be late on these payments and get hit with a late fee.
[00:05:18] For other payments that don't have this feature,
[00:05:21] I pay them through our bank's bill pay system.
[00:05:24] Our children attend a local children's choir, for example,
[00:05:28] and they don't offer direct bill pay.
[00:05:31] So I log into my bank when I get the bill, and I send the payment off.
[00:05:35] You don't even have to pay for postage if you use this method.
[00:05:39] And three, have a set amount, ideally 10%,
[00:05:43] transfer from checking to savings when your paycheck is deposited.
[00:05:48] You can either have your bank do this automatically,
[00:05:51] or if your bank doesn't offer this service,
[00:05:54] you can often have your paycheck split into several accounts.
[00:05:58] My employer, for example, will allow me to put different percentages of my paycheck
[00:06:02] into different accounts.
[00:06:04] By doing this, you are paying yourself first.
[00:06:07] Make the savings portion automatic, then spend what you have left.
[00:06:11] This does not count, of course, for cases of extreme poverty.
[00:06:16] But the vast majority of people listening could adopt the idea of paying yourself first.
[00:06:22] If 10% is too much, start with just 1%, or even just half of 1%.
[00:06:27] Are you going to build up much money saving just 1%?
[00:06:32] No, but that's not the point.
[00:06:34] The point is starting the habit, then building it up over time.
[00:06:38] These 3 simple tips can help ensure your success with your finances.
[00:06:43] Choose one you aren't currently doing, and get it set up today.
[00:06:50] You just listened to the post titled,
[00:06:53] How to Pay Yourself First and Automate Your Finances,
[00:06:57] both by Ryan H. Law of ryanhlaw.com.
[00:07:01] And I'll be right back with my commentary.
[00:07:04] I think we'd all agree that principles like pay yourself first
[00:07:08] and spend less than you earn are tried and true personal finance basics.
[00:07:14] The tricky part is applying these simple concepts to our actual behavior,
[00:07:19] especially when we're stuck in a cycle of mindless spending.
[00:07:24] I think pay yourself first becomes a lot easier
[00:07:27] when you have a clear understanding of your expenses,
[00:07:31] both fixed and discretionary.
[00:07:33] If you don't earn enough to cover your basic expenses,
[00:07:37] you simply will not be able to pay yourself first or spend less than you earn.
[00:07:41] The difference between your income and expenses
[00:07:44] is lovingly referred to as the gap.
[00:07:49] The gap is where your wealth is.
[00:07:52] And much of what we talk about on this show
[00:07:54] is about identifying the gap through budgeting,
[00:07:58] growing the gap by reducing expenses and increasing income,
[00:08:01] and protecting the gap through investing.
[00:08:05] Paying yourself first is all about deploying the gap.
[00:08:10] Maybe some goes to beefing up your emergency fund
[00:08:13] and another portion gets thrown at debt.
[00:08:15] For me, it was a huge milestone to have my full gap go to investments.
[00:08:21] This was after I reached debt freedom
[00:08:23] and fully funded my emergency fund.
[00:08:26] The gap is where it's at.
[00:08:28] So if you're working on creating this habit of paying yourself first,
[00:08:33] it would really benefit you to identify your gap.
[00:08:37] That'll do it for another edition of Optimal Finance Daily.
[00:08:41] Thank you for continuing to listen.
[00:08:43] Have a great rest of your day,
[00:08:45] and I'll see you tomorrow where your optimal life awaits.
[00:08:47] you