Why paying yourself first is the key to getting rich
I have two stories to share with you today.
Here is the first story:
Here is the second story:
They say that a picture is worth a thousand words. Study the diagrams above and see if you can pick up some of the distinctions between the two stories. If you're financially intelligent, you can see important distinctions in the diagrams above.
The Power of Cash Flow
The first diagram depicts the actions of those who pay themselves first. Each month they allocate money to their asset column before they pay their monthly expenses.
The second diagram depicts the actions of those who pay everyone else before they pay themselves. Each month they allocate money to their expenses column and then invest with whatever is left over—which is usually nothing.
If you understand the power of cash flow, you will understand what is wrong with the second diagram. It's the reason why 90 percent of people work hard all their lives and need government support like Social Security when they are no longer able to work. The reason is they pay themselves last.
The self-discipline of the rich
In order to be rich, you must have the self-discipline to pay yourself first. By this, I simply mean using your income to invest in cash-flowing assets before you pay your bills or buy anything fun. This in turn will create more income that you can use to invest in more, cash-flowing assets. Do that and you'll have more money than you know what to do with.
Paying yourself first is not easy. In fact, it can be scary, especially when the bills are piling up. But you must develop the self-discipline to do it.
Simply put, those who have low self-esteem and low tolerance for financial pressure can never be rich. The world will push you around, not because people are bullies (though some of them are) but because it's natural for those with no or low internal control and discipline to be pushed around. People who lack self-discipline are often the victims of those who do have self-discipline.
The three most important self-discipline skills
In the entrepreneur classes I teach, I constantly remind people not to focus on a product, service, or widget. Rather, I tell them to focus on developing management skills, and the three most important skills I tell them to focus on are:
Whether you own a business or not, these are the three most important self-discipline skills you can master in life. It takes self-discipline to increase your cash flow by paying yourself first, to deal with people who want to take your money before you pay yourself and to negotiate deals, and to spend your personal time wisely by increasing your financial education and finding great deals and opportunities.
If you can master these three self-discipline skills, you can be rich.
Use pressure to grow your self-discipline
Now, I can hear some of you objecting because you believe in paying your bills first. I am not saying don't pay your bills. All I'm saying is pay yourself first. Kim and I have been doing this for years and reaping the benefits. Were there times when we came up short and didn't have the money we needed to pay our bills? Yes.
When we occasionally came up short, we still paid ourselves first, however. The government and creditors would call and howl. I let them. I like it when they get rough. Why? Because they do me a favor. They inspire me to go out and create more money. They grow my self-discipline through pressure.
So, I pay myself first, invest the money, and let the creditors yell. I generally pay them right away and have excellent credit. We just don't cave into the pressure of liquidating or spending our savings to pay consumer debt. That isn't the financially intelligent thing to do. Instead, we grow our cash flow.
To successfully pay yourself first, keep the following in mind:
Don't get into large debt positions that you personally have to pay for.
Keep your expenses low. Build up assets first. Then buy the big house or nice car. Being stuck in the Rat Race is not intelligent.
When you come up short, let the pressure build and don't dip into your savings or investments.
Use the pressure to inspire your financial genius to come up with new ways of making more money and then pay your bills. You will have increased your financial intelligence and ability to make more money.
How are you going to increase your cash flow today? For help, check out our free, financial education community here.