When it comes down to it, finishing rich is simple. All you have to do is make a decision to do something that most people don’t do—to Pay Yourself First. And if you’re starting late, you have to Pay Yourself First…Faster!
It really is that simple. It’s just not easy. The catch is that you have to know what Pay Yourself First means and then you have to do it. And if you’re not where you’d like to be financially at this point in your life, chances are you don’t.
WHAT “PAY YOURSELF FIRST” MEANS
“Pay yourself first” means just what it says. The next time you earn a dollar, before you pay anyone else any money they may have coming to them—before you pay the government its federal or state tax, before you pay your landlord the rent or your bank the monthly mortgage—you must pay yourself first.
The fact is that most of us pay everyone else before we pay ourselves. The first person we pay is the government through our withholding taxes. Then we usually pay the rent or our mortgage and the rest of our bills. If anything is left at the end of the month, then maybe we pay ourselves by putting a few dollars into a savings or retirement account.
Unfortunately , this approach simply doesn’t work. For one thing, by letting the government take its portion first, there’s often not enough left over to pay yourself much of anything.
WHERE DO I PUT IT?
Fortunately, there is a way to pay yourself before you pay the government, a way where you don’t lose a third of your paycheck to taxes. And best of all, it’s legal. It involves opening a PRETAX retirement account and putting a portion of your salary into it. Every dollar of your income that you deposit (up to certain limits), as long as it stays in the account, is not subject to any taxes. And neither is any of the interest (or capital gains) that you earn on it.
My suggestion is simple. Starting today, you should work at least one hour a day for yourself. This means you should Pay Yourself First for your future by putting a minimum of 10%-12.5% of your gross income or 1 hour a day of your income into what we call a pretax retirement account. For Business owners this would be 10% of your gross income or 1 deal a year (or 2, 3 etc.. depending on your specific situation).
MAX IT OUT
The single most important investment decision you ever make may well be how much to automatically Pay Yourself First into your retirement account.
If you are already enrolled in your company’s retirement plan or have set up an IRA plan, SEP IRA etc…, congratulations. But that doesn’t mean you’re done yet. Now you need to find out how much you are using it. Are you saving 4%? That’s about what most people do. Unfortunately, most people retire poor, dependent on Social Security or family to survive. You are not most people.
In a perfect world, the fastest way to become rich is to MAX OUT THE PLAN. Here’s the maximum allowable based on current tax law:
- IRA/Spousal IRA – $5,000
- 401k/403b Plan – $17,000
- SEP IRA – $50,000
- Solo 401k – $50,000
- Defined Benefit Plan – $200,000
Now, it’s okay to start off slowly, saving a smaller percentage of your income at first, and gently working your way up to where you need to be. Even if you think the best you can do is to save just 1%, don’t let that stop you. Anything is better than nothing.
At the same time, try to be ambitious. After all, this is your future we’re talking about. However much you think you can afford to Pay Yourself First for your future—do more. If you think you can save 4%, save 6%. If you think you can save 10%, save 12%. Most of us tend to underestimate how much we think we can manage. As a result, we wind up low-balling ourselves … and our futures.
IS THAT ALL THERE IS?
To be honest, not everyone is as enthralled by the idea of Pay Yourself First as they should be. In fact, it makes a lot of people angry. You may be one of them. Please trust me on this. Nothing will help you achieve wealth until you decide to Pay Yourself First. Nothing. You can read every book, listen to every tape program, order every motivational product, subscribe to every newsletter there is, and none of it will get you anywhere if you let the government and everyone else have first crack at your paycheck before you get to it. The foundation of wealth building is Pay Yourself First. So what are your next steps?
- Decide to Pay Yourself First for your future.
- Open a retirement account
- Fund it with at least 10% of your gross income (1 hour a day of your income)
I hope that you found this information helpful and that you will make the decision to start paying yourself first TODAY!