The Daily Dinar

Open up any book on personal finance or read any blog or website on the subject, and it’s likely you’ll come across one piece of sagely advice: pay yourself first. If there is anything like a universally accepted rule of managing one’s finances, then this it.

Everyone accepts that saving is a good thing. However, there are two ways of approaching it: pay your bills and save what remains; or put aside some money as savings and then live on what remains. As most people who have tried it will attest, if you promise to save what remains at the end of a month, you’ll often end up not saving anything or saving substantially less than what you had hoped.

This is because expenses, like gases, expand to fill the space available to them; or, put simply, people have a tendency to spend what they earn. Immediate gratification tends to trump long-term benefit.

So, when you get paid, and you sit down to pay your bills, the first bill that you pay must be one to yourself. This is before you pay your rent, before you pay your phone bill, and before you pay for your internet access. Ten percent of your pay cheque is the minimum you should aim for, so take this out immediately and transfer it either to another account, a managed fund or other investment vehicle.

You should do this regardless of whether you can afford it or not: make this bill the most important of all your monthly or fortnightly expenses. The process can be made easier by scheduling an automatic transfer.

The reasoning behind this is simple: firstly, bills and expenses do not stop and rarely diminish with time so if you don’t start now, you may never start; and, the only way to build wealth is to save and invest. Pay yourself first.