Prime Rate Credit

If you’ve read any number of financial self help or money guru type books, then you’ve undoubtedly heard the phrase “pay yourself first”. And what does this phrase, pay yourself first, mean exactly? Well, the point the author is usually trying to make by saying this oft-used phrase is that before you purchase frivolous items that are consumable (used up over time, depreciable), and pay your utilities, mortgages, rents and car payments and other expenses, you should first be paying yourself.

That’s all fine and dandy, but when you have the threat of a ding on your credit report from paying a bill late, or a repo on your car, or perhaps a foreclosure on a home, this is not feasible, not by a long shot. I think what they are saying is that if you develop the habit of saving first, partying and enjoying money last, then this is the general idea of paying yourself first.

This would mean less credit card purchases, unless they are on a low fixed APR credit card that is paid down often with little interest build up, and less impulse and “fun” purchases like dinners out at restaurants, entertainment like movies and such and other items that aren’t considered a necessity. Also less vacations and time away from home, or money spent on home improvements unless they are necessary may fall into this category.

Paying yourself first means putting money away in a savings or other interest bearing account before you pay all your other stuff. It’s like a bill, only you’re paying yourself, and should put the same priority on it that you put on any other paper bill you get in the mail every month. It’s a little easier if you have a set method though, so a recommendation would be to set up automatic debits from your account into a savings or interest bearing instrument, or definitely you should take advantage of any 401k or other tax benefitted retirement fund you can be a party of.

That’s really the most ideal way to set aside money to grow for your future, because not only is it tax deferred, but you also usually get a match of some sort from your employer. It’s a no brainer really, and you should also put as much as you can into it - ideally anywhere from ten to fifteen percent of your total gross pay would be the best thing to do. If you can’t do that, then definitely work your budget a bit and make saving for the future a priority. It truly is the only way to building long term, solid wealth and security.