Many people may not have heard this. Of course many would have heard this, but may not know what it means…so here it goes!
When you earn a certain amount of money – all of that does not come to you. Some of it goes off as profession tax, income tax, insurance, provident fund….etc. What you get is the NET SALARY after all deductions.
This NET SALARY is YOUR money with which you have to live. Just wait a minute. Even this does not belong to you. Your home loan provider, car loan provider, landlord,….etc. have a claim on the amount before you can call it ‘your own money’.
So assuming you have a gross income of Rs. 50,000 pm, you may end up with about Rs. 18,000 after paying for all ‘COMPULSORY’ expenses including food, clothing, etc.
You think this money belongs to YOU,right? well, no.
All sensible calculators say that your retirement contribution should be AT LEAST 10% of your income. That means another Rs. 5000 is also gone. If you aspire to have a nice lifestyle you will need to accumulate some money for your future use – marriage (why should your parents have to spend on YOUR wedding?), buying a bigger house (or first house), etc. All this will also demand a portion of your money.
If you have some other goals, you have another Rs. 4000 available for them – like for e..g. getting good education for your children.
When financial planners and websites say ‘Pay yourself first’ – they mean PAY for all your OWN goals which are important. So consider your income as Rs. 8000 and then pay off Rs. 4000 as ‘Retirement account’, AND this amount as the ‘PAY YOURSELF FIRST’….SO THE discretionary amount available for spending is Rs. 4000, not the TAKE HOME PAY…..
This is the meaning of PAY YOURSELF FIRST…
The advantage in thinking (and acting) like this is it leaves you with very little for indulgences. You will find it very difficult to think of the next apple upgrade or the Samsung S 5 (or is it S6 now in the making?) without seeing what can be sacrificed….
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