woman paying herself

Paying Yourself First: The Financial Golden Rule

Smart personal finance starts with paying yourself first

A couple weeks ago in our continuing series on money and marriage, I wrote about Betty the Bookkeeper. Though she didn’t like it, we hired Betty to keep us honest when it came to paying ourselves first.

Each month, whether it made sense or not, we put aside a set sum of money into our asset column. We treated it just like an expense. In fact, we treated it as our most important expense. After we had paid ourselves first, we then figured out how to pay everyone else. This took a bit of work, calling and haggling, but in the end all the creditors were paid, everyone was happy, and we had money to invest with.

Pay yourself is not Treat. Yo. Self.

Some people, when they hear the term, “Pay yourself first,” get the wrong idea. They actually hear, “Treat yourself first.” They think it means splurging on things, kind of like Donna and Tom’s “Treat. Yo. Self.” from Parks and Recreation. In this show, these two government workers buy whatever they want once a year.

That was not the purpose of paying ourselves. Far from it! Instead, the purpose was to make a conscious and purposeful contribution to our asset column so that we could invest our money and make it work for us.

Words to live by

This helped us develop the golden financial rule for us as a couple: Any money in the asset column stays in the asset column.

We follow this rule religiously to this day. We never move any of our money from our asset column into other areas, such as to pay expenses or to buy liabilities like cars and vacations. This has allowed us to build our asset column exponentially over the years.

For instance, I started investing by purchasing a small home in Portland, Oregon many years ago. By keeping the money earned from that investment in my asset column, I’ve been able to build from that foundation to now owning thousands of apartment units across the United States. All it took was discipline (and hard work!)

Buy assets to enjoy the finer things

This doesn’t mean we don’t enjoy the finer things in life. What it does mean is that if we want something nice for ourselves, if we want to treat ourselves, we find ways to make the money that doesn’t mean raiding our asset column. In short, we find assets that produce enough income through cash flow to cover our expenses and our luxuries.

Robert, for instance, loves his cars. A while back, he wanted to buy his dream Porche. So, I challenged him to find an asset that would cover the cost of the car. Robert got to work and found a great mini storage investment that covered the cost of the car with monthly cash flow.

The upside was that not only did we have the car that Robert wanted, but we also grew our asset column. A few years later, the Porche was paid for and we still had our mini-storage investment making us money each month. Eventually, we sold that mini-storage and rolled the money into a great apartment property.

The point is we never subtract from our asset column to add to our liability column. Instead, we always keep our money in the asset column and add to it in order to afford the things we like.

It’s a win-win. We get to enjoy the finer things in life, and we grow our investments in the process. And that really makes it a golden rule.

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Original publish date: April 30, 2015