Pay Yourself First: The #1 Secret to Building Wealth
Let's face it, sometimes it's very hard to get ahead financially.
Whether you're paying off all your debts, saving for something special, or just building a fortune, sometimes it feels like you're taking one step forward and then two steps back.
When I feel it, I remember one thing: we will win the race by being slow and steady.
While progress may seem small at times, you will be successful as long as you stick to the #1 Secret to Wealth Building: Pay Yourself First.
In this article, I will outline the simple yet powerful step you need to take to keep your finances healthy and build wealth.
What does pay first mean?
Paying yourself first is more than just saving money.
It's about a lifelong savings mentality.
If you pay yourself first, you save money for a secure future. You take the money you earn and prioritize a percentage of that income, just for you and your family.
This ensures that you have money to invest for growth, a comfortable retirement, and possibly even a generational fortune to pass on to your children.
This is how you pay yourself first
Fortunately, paying yourself first is easy and can be done on autopilot without you noticing.
First, set a percentage of each paycheck that is automatically transferred to your PEA.
Try to save at least 10% for the maximum possible contribution.
Why so much?
Because saving 10% of your income saves you money in taxes, it speeds up retirement savings (meaning you can retire earlier) and moves you closer to financial freedom.
Regardless of your income level, you can find a way to live on 90% of your income.
Let's look at some examples to demonstrate the value of a high savings rate.
I will use the example of Jérémie and Clarisse.
Jérémie is 30 years old, top manager and earns € 5,000 per month.
Jérémie invests 8% of this income annually.
Assuming an average net return of 8%, Jeremy will have €862,541 over 35 years.
Now let's look at Clarisse.
She earns the same salary as Joe and works for the same employer.
However, she saves 15% of her income.
In 35 years, Clarisse will have € 1,617,264, almost twice as much as Jérémie (but without having to invest twice as much).
If you only need $850,000 to retire, you could retire long before Jeremy.
The power of compound interest
Clarisse was able to retire long before Jeremy thanks to the power of compound interest.
These provide a significant increase in free money and this process outlines exactly what it means to make your money work for you.
But let's look at another example where we compare Marc, Aurélie and Charles. They have higher education and careers in large companies.
Marc first started saving when he was 38 years old. He made over $100,000 in student loans, bought a new sports car when he graduated, and then bought a nice house after his first big pay raise. It took her a long time to pay off her debt and develop a savings mentality.
Fortunately, he realizes the importance of saving and starts diligently depositing 10% of his earnings each month, for a total of $500.
At the age of 65 Marc has € 546,548. Unfortunately, it's not enough to cover all his retirement costs, so he has to work for a few more years.
Aurélie starts saving at a young age. He saves the same amount as Marc, but started 10 years earlier. At the age of 65 you have saved 1,270,599 euros in your pension account.
Now let's look at Carlos. Start saving even earlier. But then life comes along. You also buy the nice car and the big house and just run out of money each month to contribute to your retirement plan. He saved more aggressively when he started, putting aside $1,000 a month between the ages of 25 and 35. It doesn't add anything else. At age 65, Charles has 1,824,188 euros.
Who would you rather be, Marc, Aurélie or Charles?
The power of investing
If you do nothing but save at least 10% of your income into a retirement account, you'll reap the benefits of compound interest and, if you start early enough, a comfortable retirement.
But what if you want to retire early? Or build a legacy that you can pass on to your children?
This is where growing your money is important.
And this is where the investment comes in.
The most common example is home ownership.
Assuming your home appreciates over the years and the mortgage is paid off, you've built a solid wealth that can increase your net worth.
You can sell that house when you retire and live less while keeping the remaining income difference, or you can buy a smaller house and rent out the original house for passive income to use in retirement.
Another possibility is that you pass the house on to your children as an inheritance.
But there are many other forms of investing.
Since I have invested a lot in real estate, I will take this as an example.
Pay yourself first, with a plan
It's not easy to start the habit in the long run and pay yourself first.
That's why it's so important to have a plan.
A long-term goal that keeps you motivated and constant. Money is not enough incentive. It doesn't buy happiness. In addition, long-term savings do not yield immediate rewards.
What prevents you from indulging in excessive spending for instant gratification?
Discover what really makes you happy.
What do you see as your ideal future? What gives purpose and fulfillment?
Remember that you are saving with a purpose.
Because it takes so long, it's extremely important to remember why you're paying yourself first.
What is your long-term financial goal and what does it mean for you? How will your life be different when you reach it?
Your long-term goal will guide you and help you plan for the short term.
This gives you the reason to keep paying yourself first and the motivation to grow your wealth.
Saving 10% of your income (or more!) may seem impossible.
You may barely get by. The problem is that it will never change. It doesn't matter how much you earn.
Saving 10% of your income gives you the power to control your finances and save and invest for your future. A portion of everything you earn is yours. You just have to make sure you keep it.
If you want to know other articles similar to Pay Yourself First: The #1 Secret to Building Wealth You can visit the category Saving.
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