The majority of the millionaire and billionaires in the United States achieved their wealth through one simple strategy:  “Pay yourself first”.  When you pay yourself first, you allocate a certain portion of your payment to your own personal goals. 

Every month, you pay your own “bill” into your savings account.  It is an incredibly easy, but powerful, way to save money towards your future wealth.  In fact, when you have already paid yourself for the month, it psychologically makes it easier to pay other institutions, such as your bank, cell phone company, and credit cards lenders.  

It is certainly true that money makes more money, but even if you have a minimal savings account currently, paying yourself first gives you the funds it takes to obtain significant wealth in the future. 

The benefits of paying yourself first

The most tangible benefit of paying yourself first is the growth of your savings account.  If you can afford to pay yourself a portion of your paycheck, then you can quickly amass a significant nest egg.  With these saved funds, you can put your money to work for you through savvy investments. 

Another great advantage to paying yourself first is that it becomes much easier to manage your finances.  When you allocate a certain portion to your future life, spending money on frivolous objects won’t have such an impact on your wealth.  By learning to manage money in a better fashion, you are better prepared for the future.

When you pay yourself first, you automatically improve your standard of living.  An individual with an average income can quickly move up; the money you pay yourself first earns additional income for you through investments.  Research demonstrates that 99% of wealthy people invested a portion of their money to reach the financial prosperity levels they have today. 

Rules for paying yourself

The first rule is to get the money you save out of easy reach.  Put your savings into investments that are restricted by time. For example an IRA or most other retirement funds have punitive penalties associated with them to discourage early withdrawal. Many self-directed mutual funds require you to request that a check be sent to you for a withdrawal. Still pretty easy to access your money, true but these hurdles tend to discourage purely impulsive spending which can destroy the hard work and sacrifices that got you the accounts. The second rule to effectively paying yourself is to find good investment vehicles.  You can only become wealthy by making your money work for you.  Whether you choose risk-free CDs or equities, ensure that your money is generating steady returns. For example, while an antique automobile may sound like a good investment that you can actually have fun with, it is a very risky one. Better to invest in a mutual fund that you can’t drive but, that can someday buy any car you want.

The last rule is for you to pat yourself on the back!  By paying yourself, you are taking a major milestone to building your future wealth.  When you pay yourself, you set your finances apart from your leaky purse – into the segment of wealthy decisions.  You can eventually gain financial freedom by simply paying yourself first. You should congratulate yourself on your sacrifice and discipline, it will set you free.