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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  1. Hi
    My Parents did not do any of these calculations, mathematics and statistics. still they have grown from Zero to Good level. Good level means Educating two of us ( me as MBA, My bro as MCA), i am married and have son, they are searching for my bro. My parents built a house and still run the same small grocery shop for their retirement. All happened well and they covered under all sorts of insurance via my company, my bro comapny and seperate as well.

    They achived it. similarly we also acheive it. but the above calculation is really alarming every other day in some posts.

  2. So what are you trying to say Karthikraja? My grandfather, father, mama none of them took life insurance, not even medical insurance. My grandfather did not buy a car, but my father did.

    So I should not buy a car, not take insurance, ….just asking what are you trying to say. If all one needed in life was anecdotal examples to learn life would be easy, right?

  3. Sir,
    May be my English is poor. I am trying to say that Raising Two kids with good education and their marriage, needs lots of money with proper planning (Present Tense).
    But it was achieved by my parents with out proper financal planning.

    By seeing regualr post of Retirement calculation, future value of money, 11.24% CPI —-all confusing the young generation and making us to think we may not achieve. Life will be full of EMIs….

    (I am not talking about wants and needs)

  4. @Karthikraja

    Just read your comment and was tempted to write here

    Financial Planning (forget that word), just planing your financial life is not about achieving something , its about managing it better. Without financial planning, your life will still go on, you will still buy house, you will still retire, and still eat out, but if you plan out things a bit and be more prudent in each of your actions , the path would be more smooth , the worry might be lesser than usual .

    I hope you got the point ?


  5. Agree with Karthikraja, If we draw a FINANCIAL PLAN & say you require 10 crores for retirement., it make the person feel more of unachievable target. Didn’t saw any person who DRAWN FINANCIAL PLAN & became rich(or wealthy).
    Earn, Save & Spend frugally is of more reasonable way.

    Adding small things at times seems is more achievable then drawing long term plans.

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  7. @Karthik -> Both my grandfathers ( paternal and maternal ) were heavy consumers of tobacco and both lived well into their 80s and led a good life from a health perspective. So how should I take that? Does that mean I continue to do the same and hope all will be well? Times and circumstances have changed, lifestyles have changed. What worked for our earlier generations may not work for us.

    Think again.

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