Chapter Two: Pay Yourself First

Did you know that the average wage earner would have earned over 1.8 million dollars throughout their lifetime? So at some point we are all millionaires. If we are all millionaires, then how come most of us do not have a million dollars in the bank? The answer to this is simple - it is not important what you earn, it is important what you keep.

You’re probably, thinking right about now that it is easier said than done. Let’s face it, after bills, taxes, school, etc…you hardly have money leftover. That is why it is critical that you pay yourself first. Here’s how.

Put Yourself at the Head of the line:
This means that before anyone else gets your money (i.e. the gas company, grocery store, etc…), you pay yourself by putting a set amount aside in a savings or investment account. Later on, in chapter 8, you will see how you will be able to derive a set amount, by following the Rapid Debt Reducer. The ideal amount is to set aside 10% of your income. Starting out it may be less; however, the Rapid Debt Reducer program will show you how, over time you will be able to comfortably set aside 10% or more of your income.

After you figure out how you are going to pay yourself first, then you need to figure out where to put the money. In order to have a complete savings program there are three accounts you need. You will need to establish an emergency fund account, a short-term savings account and a long-term savings/investment account.

Emergency Fund:
This fund is for when emergencies arise, such as, an unexpected expense, job loss, serious medical issue, etc… It is a good idea to have three months’ earnings in your emergency fund account.

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Short-Term Savings Account:
This account is so that you can keep your credit cards back in your wallet (better yet, back in the freezer). The short-term savings account is money set aside for expenses such as a vacation or new computer.

Long-Term Savings Account:
In this account, you will put your money for retirement, your children’s college funds and other long-range savings goals. It is important to invest the cash for this account into some form of an investment vehicle, such as a mutual fund, IRA, or Savings bonds. You may want to consult a financial advisor for various options.

So now that you have paid yourself first and set-up accounts to place your savings in you have taken the first step towards financial freedom. In order to stay on that road you may want to think about using direct deposit for your savings. This will take away any temptation you may have about not wanting to pay yourself first. Trust me, there will be times when you have an extra $25 and you will want to purchase that new CD, rather than add to your emergency fund. Don’t put yourself through this struggle use direct deposit.

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