One Secret to Financial Independence: Pay Yourself First

One of the oldest and the most important rules of personal finance is "Pay yourself first". All of us have heard this at one time or another. 

So what does "pay yourself first" mean?

It means that you need to keep some portion of your net income aside before you pay your grocery bills, before you pay your phone bills, before you pay your credit card bills and before you pay for anything else. It is as simple as that. Most of the time people fail to do this because they never plan for it. They plan when they want to buy gadgets, cars, but they do not plan to save money. The biggest problem is that they try to save whatever is left after all the expenses.

Many people do not save because they think that little amount of money will not get them the fortune they desire. They try to climb a mountain in one day and end up spending their whole life at the bottom. To achieve every big dream you need to start with a small step. It is better to take many small steps in the right direction than to make a great leap forward only to stumble backward. Start saving from this day forward, even if it is just a penny.

Benefits of paying yourself first.

Paying yourself first is the best personal finance strategy. You will get the same advice from the top personal financial planner such as James Potter of Stifel Nicolaus.

•It brings discipline to saving. - When we start paying our self first, we keep saving as our priority. This is the first step towards abundant wealth.

•We save money from spending on things we do not need - Many a times we end up in spending money on things we do not need at that time, just because we have money in our pocket. If we start saving before spending then our money will start creating more money for us.

•Using saved money for better purpose - You can use the money for emergencies or to buy a house or to pay for child's education or even for a European vacation.

So the next question comes "How to pay yourself first?"

If you want to save with discipline then best thing to do is to make it automatic.

•For those who want to go for risk free saving, can ask their employer to increase their contribution towards their 401k account. This will be deducted directly from your salary.

•The best way to invest is through SIP. You can start SIP for mutual funds and can make arrangement with bank for ECS through which your money will be debited from your account every month.

 •One can also start recurring account with the bank which is giving highest interest rates.

10% of your net income is a good amount to save. If you cannot save 10% then start with 1% and then over a year increase your contribution.