It sounds contradictory and counterproductive but paying yourself first can be a very effective personal finance strategy for wealth generation.
- Decide how much you would like to spend each weak on your self.
- Decide how much you need to save each week to reach your savings goals.
- When your money comes in, set your spending money and savings aside first before you pay any bills.
- If you find you are not keeping up with expenses this way, it’s time to reduce your costs until you are living within your means. Do not reduce your allocated spending money or savings amount, cut out expenses like Netflix, Spotify, second car etc. Shop around for better rates on your bills and insurance.
With a pay yourself first strategy, you are more likely to reach your long-term savings goals for two reasons:
- Prioritising spending is sustainable long term as most of us give up living like a monk after a few months or even years.
- Moving savings up your priority list, forces you to cut costs rather than miss your weekly savings quota. Meeting our weekly savings quota is all to often the first thing we sacrifice and therefore the biggest threat to generating wealth over time.