In today’s episode, I discuss the importance of learning how to pay yourself first.
Full Transcripts
Hi Everyone, welcome to the You’re Daily Cup of Joe Podcast, with your host Joe Bautista. In this podcast, my goal is to give you quick lessons that you can reflect on in your journal so you can grow yourself physically, mentally, emotionally, and spiritually and have a better career, better relationships, and better personal finances while you enjoy your morning cup of coffee.
I’m also the author of the book “More You Know, More You Grow: How to Get Better Every Day”. In this book, I wrote down over 30 tips to help you grow in those four cornerstones. I’m also the founder of Grow With Joe, where I combine self-development coaching and financial planning for Latino Professionals.
At the end of today’s podcast episode, I’m going to give you a prompt question to reflect on in your journal. The idea is to take one to five minutes to reflect on today’s lesson and write a minimum of one paragraph on how you can apply the lesson in your life life. You can use an actual journal, a word document like on Google Drive, or your note-taking app like Evernote. The idea is that you’re actually thinking about how to process the information to help you improve your life.
In today’s episode, we’re are going to talk about how we need to pay ourselves first. If you don’t pay yourself first, there is going to be a day where don’t have anything to live off of. When spending money on other things, you’re paying someone first. With your cellphone bill, your car insurance, and all those other bills, you’re paying someone, you’re not paying yourself. Your car insurance isn’t going to pay your other bills in the future. Whatever you make, you should take a portion of that to save it to yourself. A certain portion goes towards your long term goals like retirement, A certain portion goes towards your short term goals like a car down payment, and a portion then goes to your emergency fund.
The exact numbers are going to be dependent on your goals but a good rule of thumb is to put ten percent of your income in your retirement and investment accounts, five percent into a savings account for those short term goals like a vacation, and then five percent into your emergency fund until you reach six months of expenses covered. Then take that money and either put it in your retirement account or your short term account.
The reason why 20% is a good number to go for is that there is a book out there called the Millionaire Next Door and these two folks with PhDs studied what caused people to become millionaires. What authors found out was that it wasn’t how much money you made, it’s how much money you saved. They found that millionaires don’t spend more than they make and they save 20 percent of their income. If you do this, then you should be fine in the long term. This is only one part to help you reach financial security.
If you can’t reach 20 percent right now, don’t worry about it. You don’t have to be great to get started, you just have to get started to become great. As you pay off debts, readjust your spending habits, or get pay raises, you can put more towards yourself. One great tip that I like is that forever pay raise that you get, half of that pay raise should go to you and the other half to your standard of living. Do this enough times and you’ll be at your 20% mark. A lot of this is valuing paying yourself first than anything else. This is just something you do, no questions asked.
You can still live a great life with the other 80 percent. Well, it’s more like 50% with taxes. There will be a day when you’ll be happy that you paid yourself first. I’ve been in front of other people who are close to their retirement and didn’t pay themselves first. I feel like times have changed so much and they were worried about paying for other things and just focused on the wrong things. In life, there are the things you know, the things you don’t know, and the things you don’t know what you don’t know. My mom tells me all the time that she wished she knew certain things back then and would be so much better offer now. I pay attention to this and I make sure I’m using her wisdom to make my life better. It sucks that she had to go through life getting the wisdom too late, but at least I learn from it and make my life better down the road.
I feel that a lot of people just get their paycheck and don’t know what exactly to do with it. By using this simple method of 5-5-10, you have a good benchmark of what to do with your money. You just follow that and should be good in the long run. If you constantly save 20 percent of your income from your mid-twenties to your sixties, and that you don’t dip into your retirement accounts, you should be fine or at least better off than someone who didn’t save any money for their entire life. Most likely you’re going to reach retirement, but the standard of living you’re going to have in your golden years is going to be dependent on how much you accumulated during your working years.
This concept of paying yourself first also applies to your physical health, your mental health, your emotional health, and spiritual health. Before you give your attention to someone else first, give attention to yourself first. This will help you out so much down the road and will make you more resilient. There are few exceptions in life where you shouldn’t be paying yourself first. Just start off small and in 66 days you’ll make it a habit. Once it’s a habit, then you’ll wonder how you can avoid doing it any other way in life.
That’s it for today’s episode, and to summarize it, we need to know how to pay ourselves first and then actually start doing that. This will help you stockpile a war chest for any situation down the road. A good rule of thumb is to save 20% of your income where 5 percent goes to your emergency savings, 5 percent goes to short term goals, and 10 percent goes to your retirement. Then once you have your emergency fund at six months of living expenses, then put the money into either the short term or long term bucket, or just split the difference. This will help ensure that you have something in the future to live off of and not worry about accumulating debt. Life is a balance, and you need to enjoy today while also preparing for the future. This is a good setup to do both. Hopefully, this podcast helps you think about your budget in a different light.
So in your journal, ask yourself, are you saving 20% of your income? What are some of the biggest hurdles that are preventing you from reaching this goal? Is there something you can remove from your life to help you reach this goal? Can you increase your income so you now start saving more? If you’re already saving this much? Are you allocating your money to the right places? Are you holding too much onto cash? You could be doing good, but are you doing great. If you have any questions about this, just send me an e-mail at [email protected].
Thanks for listening today! To get a free copy of my book “More You Know, More You Grow: How to get better every day” just go to my website growwithjoe.me/book and just pay for shipping and handling.
I have a quiz on my website that grades your inner circle, so if you want to find out if your inner circle is an A, B, C, D, or F, you can take that quiz at growwithjoe.me/quiz
I’m also trying to do a feedback Friday episode, so if you have a question that you would like to have my answer on the air, just e-mail me at [email protected]
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Thanks for joining me today and remember if you go with Joe, you can grow with Joe, cause Joe knows Dough.
*Music outro
Who moved my cheese link
