The Richest Man in Babylon by George S. Clason is a must read for anyone looking to “level up” their personal finance game. It was originally published in 1926 as a parable and its timeless concepts are just as applicable to today. Spend less than you earn, pay yourself first, and invest wisely are the cornerstones of the message.
What does it mean to pay yourself first? It means that you designate a part of your income to your future, not your bills and living expenses. It means being intentional about saving money every time you receive income.
According to ramseysolutions.com 19% of Americans report having less than $1000 in savings and 36% have no savings at all. According to the 2022 Stress in America study published by the American Psychological Association, 65% of Americans say that money is a significant source of stress.
Millennials and Gen Z seem to be the most affected by financial anxiety. The APA survey found that 82% of Americans ages 18-25, followed by 81% of 26-43-year-olds, consider money to be a significant stress point in their lives.
So, what’s the solution? Pay yourself first! It’s a decision that needs to become a habit. Everyone needs to start somewhere. 10% would be ideal target but start where you can and gradually progress.
Speaking from personal experience, commission-based sales and sales management careers are awesome when you consider your income is unlimited. They can also be frightful in terms of volatility. This is one of the reasons it is so important to build up an emergency fund to take the pressure off.
Early in my career I must admit I was living on the edge financially. I spent what I earned, and sometimes before I earned. This put pressure on me to perform. Sometimes having pressure was a good thing, but there were times when it prevented me from living joyfully. Prospective customers want and appreciate doing business with joyful sales professionals.
Having 3 months of expenses sitting in the bank in an emergency fund allows you to comfortably ride the ups and downs of business. I can tell you that I’ve done it both ways and it’s so much better when you have a cushion.
I’ve always used a separate bank account for holding my savings. Today there are many vehicles including apps and online banking. My suggestion is having a separate place to hold your savings. Establish a routine for making regular deposits. My rule is every time I receive income, I immediately transfer 10% into my savings account. I do this first before spending or paying bills. This way I am not tempted to negotiate with myself about whether I can afford to save or not. That’s the key, make it automatic.
You also need to decide in advance what you are saving for. Start with targeting what 3 months of expenses would be. Once you have saved that, the only reason you would touch those funds is to make up a deficit in your monthly expenses. When you do, you immediately rebuild back to 3 months.
Once you have your 3 months in place, you can save for major goals like vacations, vehicles, and purchasing a home. Don’t forget saving for retirement as well.
Developing the habit of paying yourself first is the difference between working to make a living and working to make a life. This is one habit that you want to develop in 2023.