Are you paying yourself last?
- Posted by Roger Hendricks
- On 01/11/2016
- 0 Comments
After feasting on your golden goose, the next very successful way to ensure you never have a rich tasty financial freedom feast is to wait until the end of the month and then see what’s left to save and invest.
This is not just paying yourself last – it’s putting yourself last.
Let’s learn from the taxman. Yes, the taxman is smart. SARs take their money from you first, via PAYE, directly from your employer. You don’t even get to see it. Why? They know that if they had to wait until the end of the month there would be no money left.
Be like the taxman. Pay yourself your investment funds first. Set up a debit order for the day you get paid, don’t even let that money come near your spending account.
When I lived in Hong Kong I was dumbstruck. Most people working in Hong Kong earned more money than they had ever earned anywhere else and since there wasn’t any PAYE equivalent they got their full salary every month. Once a year you got a tax bill for your whole year’s tax. The great thing though was tax was only 13.5%. Yes you read that right. Just think how much money you would have left over each month if you only paid 13.5% tax! Wrong.
Now here’s the amazing thing. Despite earning more money than they had ever earned before, despite having to pay only 13.5% personal income tax, over 86% of the expats living in Hong Kong had to borrow money at the end of every financial year to pay their tax bill! This borrowed money then cost them even more money in interest. They did this because they had bad money habits and had never learned and mastered the principle of “Pay Yourself First”.
They have never learnt that a part of all your earnings is meant to be yours to keep. This is where I learned a key ingredient to wealth, “it doesn’t matter what you earn, what matters is what you do with it”.
I set up a separate “Pay Myself First” bank account just for my 13.5% tax bill and 10% of my earnings that I chose to keep in my life to work hard for me. Every month a debit order automatically took 23.5% from my general account into this account BEFORE any other bills were paid. When my tax bill arrived I not only had the money I needed to pay my tax bill but I also had the interest it had earned to add to my investments.
Paying yourself and your financial freedom first is the most critical step to your financial wellbeing and being able to live the life you desire. This is a habit and until you create this habit you will never get rich. It doesn’t matter how little or how big the amount is, the key is the habit.
Paying yourself first is also a huge message to yourself that “YOU ARE WORTH IT”.