Pay Yourself First
How many times have we heard this before?
Heard what before, DT? Another one of my simple success plans which can take a bit of time?
Yeah, or anything like How to Succeed in Business.
Or maybe I mean the title of this week's pod!
Oh, you mean pay yourself first?
Yeah, that was even a movie title I think.
No movie title was Pay It Forward. But it's the same idea. Mostly.
OK, I'll play. How do you pay yourself first?
Well, one way is by moving yourself up on the budget priority list. Which we'll talk about in the middle of this show.
And is there any other way?
Oh sure, by simply looking at. Your financial goals. From the viewpoint. Of prioritizing yourself.
How do you mean?
Well, let's take ROI for an example.
OK, I think we've talked about this before....
Maybe we have. But repetition says we can talk about it again and again.
Because that's how the brain does it.
You got it my friend.
So going on with the ROI example.
OK, try this on as a power statement: I made a pick in September which returned over 20%.
Not bad for one year.
No, not. At all for one year. But this isn't for one year. No. I said that as if I were giving you an annual rate, but I did that in JUST ONE MONTH.
Sounds like it's a pretty risky & specialized investment.
I can see where you would think that DT.
But it's not true.
Well, that's a relief. We wouldn't want to let lead people down the wrong path.
Or make them think they need a new app just to. Play.
So how do you do this?
It's pretty simple actually.
Oh, please enlighten us.
OK. Since it can be complicated, I'm just going to look at some highlights for us.
The gist of the whole thing revolves around my daily step goal.
Wait, wait. Fitness or finance?
Both. Oh, actually, really, a blend. Because. Good health as well as good finance are my goals. So it's natural For me.to find a way to. Blend them and. Stack some habits together.
Maybe that'll be true for you too.
Or others listening to this.
Yes or others. So this app...
This fitness app...
Yes, this fitness app rewards players, giving them their bet money back plus the money wagered by everyone else who didn't follow through on their goal.
So how does this relate to ROI?
Good Q DT! It relates because. The app classifies you getting your money back as your return on investment, or ROI.
Oh, so ROI is just another way to look at how much you made.
Yes, in a sense. When you make any investment, what you really are expecting is a return. That's the interest you get.
And it's the perspective. The better perspective in this case. That's key to helping you understand and making it. A habit. That helps you succeed in life.
How do you have a better perspective with this app?
Because your stress is reduced.
Because the amount that you're putting at risk is so small relative to the big picture of your whole retirement.
As well as everyone else’s bet.
(laughs) Right! Imagine this picture.
You're going to bet 40 bucks. And I find you a bet for that 40 bucks. And I really wow you with that.
And how you're going to do that?
I'm going to tell you that after six weeks, you can take home 48 bucks.
Hoo boy! 8 bucks! Can I snore now?
Hey, that's lunch money.
Yeah, for six weeks of work, no deal.
Yeah, I thought you'd think that.
So how about this instead?
Same bet... Same time frame...
So what's different?
I'm going to tell you that after six weeks you can take home 20% ROI!
Wow, that's a pretty good deal.
Why do you walk into things so easily?
What do you mean?
I set you up.
Yes I did. 8 bucks. And 20%. Are the same thing.
I fell for that?
You did, but just about everybody does. So don't worry about it, DT!
OK, so what's your point?
My point is. When you let. Your logic get out of the way. You can win.
A break would help you win as well, wouldn't it?
It would, so let's do it!
You've all heard the aphorism, pay yourself first or pay it forward, which is a really great one.
But here, I'm talking about pay yourself first.
When I was an active stockbroker, the company that I worked for had a budget sheet as part of their savings strategy.
Which company was that?
I’m staying away from that, DT, because my point is that this financial decision can happen to anyone and it just doesn’t matter which financial firm they like.
This whole conversation came as a result of thinking I’d been doing about the company’s message.
And you were their what…their advertising manager?
No, I was not. And that made the conversation a bit more unlikely, I thought.
The company message, or at least the one I was concerned about, was that we should all use our budgeting style to pay ourselves first. To put money into savings.
What's a budget?
Oh really, DT? Do we have to go there now?
No, I know what a budget is.
Then why did you ask?
I simply wanted to draw attention to budgets.
OK, you've done that, DT. It's about spending habits.
And as you were saying...
So they had a budget sheet. And at the top, there was a space to put your monthly income and any other sources of revenue.
Yes, like the MSI's, the additional sources of income we've frequently discussed.
And then in would come the financial emergencies, the millions of dollars of expenses.
Millions? Like what?
Not millions, really. Just wanted to be sure you were paying attention. Your external obligations. Things like. Utilities. Insurance. Transportation. Cell Phone. But most of all where you live.
Sounds good so far.
Yes, except that the top of their list was:
Was what? Major expenses?
That where you live part. Your rent or mortgage.
Well, of course, that's pretty important.
Agreed, DT. And after that is taxes. However…
There was no mention of yourself. Of paying yourself first.
Oh! I didn't notice that.
That's because nearly every professional budget sheet, many of which you can download for free, is organized in just that way!
I'm following you, but you need to go on with more.
Right. Picture it this way. You get income. From your job, your MSIs, whatever. And instead of paying yourself first, you pay your mortgage and your taxes first, and then your other things like insurance and utilities and all the rest of the things, like gifts.
Yeah, that's pretty normal investor mentality.
Yes, DT it is normal, but it puts you in the class of other normal people instead of successful, on top people.
And I'm thinking that...
That Simple Success people are successful on top people.
So that means that they should...
Pay themselves first.
And how does that play out in this personal savings picture?
The first line on that budget sheet after your income, or incomes, should be you. You have how you pay yourself first thought all the way through.
You first. Pay you first.
Yes, the first 10% of your income. Make it a monthly payment to yourself. Make it a savings habit.
We can adjust the total. The Paying Yourself First part, the steady contributions, is what's most important, and it’s really important for that number to make a dent in your plans.
And then what?
Then your mortgage and rent, and then your taxes.
What's the difference?
The difference is: In the normal first scenario, you get income, you subtract your expenses, and you maybe have enough left, at the end of the month, for a pizza and a movie.
Which is good, right?
No, DT. It's not good or right.
When you pay yourself first, whether it’s 10% or any other amount, month after month, then you ensure that by using the extra cash to create saving for your future at least some of your current work is EARMARKED for your future.
Making the whole thing worthwhile.
Yes, and you don't have that “We only got a pizza and a movie” line, leading to “Forget it. Let's try again next month.”
Which, over a period of time, doesn't work either.
Not if your future is important to you. Not nearly as well as a break does.
Like this one.
You are truly becoming a God of podcasting, DT!
So, did anything come from that interaction?
Yes it did. Fortunately, I was able to convince her of my point. And the company's budget sheet was changed within a week.
And it revolutionized the world, right?
Not exactly DT, but it was still important.
Is there any other way you pay yourself first? Any other cash buffer?
Well yeah, as a matter of fact. I use some of my own savings to make money.
And how do you do that?
It’s simple. I use a website called Prosper.Com instead of a savings account.
Yes, instead. Because of what we said a few episodes ago. About how lending and interest work. If you keep the money in a bank savings account, at least the way things work currently, you will probably earn about half of one percent in interest. Not a great way to encourage saving habits.
Did you say earn?
Loosely, I did. That's what it's called anyway. But I do better than that. I earn more than 5% annualized on my SAVINGS, by lending it just like a bank does.
Why don't you just bitch about things like “Why they don't let you do it right” and “Why they don't care”? You know, make it faceless.
(Laughs.) Because. You know why? Because bitching doesn't solve the problem!
I know. I was just playing devil's advocate, so to speak.
Oh, by the way, are you going to connect this to investing?
I've done that, I think.
If I can do it better, please enlighten me.
Ok, you did say in an older pod that saving was investing.
Yes, DT, it is. And this is a way of keeping your powder dry. Or at least some of your powder dry while being able to get to it easily and put it into something that you prefer… should that be the case for you and your savings goals. Some prefer to call that an emergency fund.
Well, despite what Othello says:
You mean “Heaven truly knows that thou art false as hell”?
Yes, that line. But modified. Heaven truly knows that thou art NOT false as hell, at least not on this topic.
And this speaks exactly to why investing plays such a crucial role in our lives.
Which is what, exactly? What's the powerful motivator?
It's the best way to take the stress out of our future. You know, we're often taught, especially lately, to embrace things like calmness and mindfulness and the like. An unexpected expense doesn't fill that bill very well.
Yeah right, go on.
Regardless of how you think about that, why not bring that aspect into other things, like preparing for your own future and your family's future.
You mean take the stress out?
Yes, DT. That's exactly what I mean.
Does this feed on the... “When you change you” idea?
It feeds on that and on the vision doc that we’re now beginning to talk about more.
By having overcome stress, we find that we have a lot more mental space to look around.
We can take advantage of even MORE current opportunities.
With more mental space…
Yes, and we can remember better.
And when we remember better...
Then we remember to practice.
And when you practice. Over and over again. Then…
YOU’LL GET GOOD!
¡Gracias por escuchar! ¡A la prochaine!