Achieve financial self-sufficiency with practice of ‘Pay yourself first’

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pay yourself firstThe best time to start saving is when you’re young. The second-best time to start saving is now.

Have you heard the expression “pay yourself first”?

Pay yourself first is a simple financial planning concept to automatically prioritize your savings.

 The first thing you do when you get your pay cheque, before anything else, is to take a small amount and put it into your savings and investments.

These funds are not to be touched.

Then, after you have paid yourself, other expenses can be paid.

Many people run out of money by the end of the month. That’s the significance of paying yourself first.

Save before the money is spent

Save first before the money is spent.

The idea behind this strategy is to ensure your future financial goals are safeguarded. Those goals could include an emergency fund, contributing to retirement, building a down payment on a home. These should be covered before non-mandatory lifestyle spending.

The money put aside will start to grow as a result of interest income, dividends, and capital gains. It’s the snowball effect. The original amount makes more money which, when invested, makes even more.

Get into the habit

Getting into the habit of paying yourself first can be tricky. People have lots of reasons why they put off saving. For some, instant gratification is more important than what they consider a sacrifice.

According to the Canadian Payroll Association’s ninth annual survey released in September 2017, 26 per cent of working Canadians believe that financial security will come from earning more, and only 19 per cent think spending less is the answer.

Meanwhile, a recent study from Meridian, Ontario’s largest credit union, found that 42 per cent of Ontarians regularly deviate from their budgets, and 58 per cent of respondents said they overspent on non-essential luxury purchases.

Saving is a mindset

Savings, like many other things in life, comes down to a mindset. When you make specific goals, saving for them can be easier.

When you are on a sound financial footing because of a disciplined savings program, good things happen.

For example, if you have saved to buy a house, a healthy down payment would decrease the amount of interest owed and lower your monthly mortgage payments. With lower mortgage payments, you could continue to save.

The longer-term goal is to have all your personal assets (like a house and car) owned outright, be debt-free, and have accumulated investment assets. Eventually this leads to financial self-sufficiency.

When you are financially self-sufficient work becomes an option. Continuing to work is your prerogative but no longer a necessity.

Ideal result

The ideal result of being a good saver is that you own an extremely well diversified investment portfolio. You will own shares in some of the best Canadian and International companies.

When you are financially self-sufficient you can view the world differently. You are more in control on what you decide to do, or not to do.

When you get up in the morning and hear commuter traffic reports about our congested highways, you can smile. Those hard-working Canadians, and people around the world, are going to work in companies you have invested.

For many, their financial goal is to become self-sufficient.

Save as soon as possible

The starting point for self-sufficiency is saving, and the sooner you start the better.

To quote Warren Buffett, “Don’t save what is left after spending, spend what is left after saving.”