If you have never read George Clason’s book The Richest Man in Babylon, you need to go on Amazon or Audible (or whatever your go-to book site/app is), get it, and read it. It was written in the early 1900s yet is full of sound financial principles that still apply today.
The first idea Clason discusses is that a part of what you earn is yours to keep. It’s known as the “pay yourself first” principle.
What Does It Mean to Pay Yourself First?
You have probably heard it at some point in your life, and like most people you thought, “This is such a great idea, I really SHOULD do this.” Then, like most people you went on your merry way, not learning or putting into practice a system for paying yourself first.
Here’s the simple, actionable advice you need to implement right away: Sit down, think it through, and come up with a reasonable percentage of your earnings that you are going to pay yourself. Write it down, and commit to paying yourself that amount each paycheck or draw moving forward. And do it first—before you pay any other bill or debt.
There it is. Plain and simple. And that’s exactly what it’s supposed to be: plain and simple. If it weren’t, you wouldn’t do it at all, let alone for the long-term.
Robert Kiyosaki, author of Rich Dad Poor Dad and many other financial and business titles, tells the story in several of his books that he would always pay himself from any gain he got—no matter what. He even chose to forego paying bills if he didn’t have leftover money after paying himself. As you might expect, people were mad and bill collectors were calling. But he wanted to make sure the principle of paying himself first was ingrained down to his core.
I am NOT advocating to skip paying your bills. However, I am promoting doing what it takes to ingrain that principle in you. It’s a solid, foundational step toward financial success.
Why Pay Yourself First Works So Well
You might say, “This couldn’t work. My business is different. I can’t pay myself first. I can’t change the way I’m doing things now.”
But know this: Changing the way you think might just change your life. The fact is, you are NOT different. You CAN pay yourself first. Managing finances appropriately is not a secret or a magic formula.
When it comes to paying yourself first, it’s a basic principle that most people know but just do not practice. C’mon, you’re a real estate investor, though—a maverick entrepreneur. You’re telling me you want to be like everybody else who thinks they can’t do something? That kind of thinking should make you shudder.
Or maybe, on the other hand, you are thinking, “Yes, I can do this, but I just don’t have the time or the experience to practically apply this to my business right now.”
I want to counter that thinking and get out in front of it. I contend that you DO have the time to do this, and you can always beg, borrow, copy, or pay to figure out exactly how. I mean, we’re not talking about learning a new-fangled CRM or tackling a brand new investment strategy. We are talking about keeping more of the hard-earned money you are making and mastering an extremely important financial principle.
Money will control you if you do not control it. In fact, you are probably already being controlled by that hard-earned money. I’m here to tell you that there is a better way.
The Bottom Line
Think of it this way. Considering where you are currently, could you handle another economic meltdown? Will you be fine when the real estate bubble bursts next?
Many financial experts and real estate investors say another recession is anywhere from 12-36 months away. Is your business recession-proof? Do you have the cash and systems in place to make sure you can handle any type of economic environment?
If you do not and you think you don’t have the time and bandwidth to do something about it, then when the next downturn comes, you could be looking for a job yourself or letting a lot of good employees go.
This is the difference that having cash in your account and a system to manage your profit prevents. It gives you that peace of mind that you can weather the economic storms that are sure to come. Your employees, your business, and your family will thank you profusely when they know that you are set up to take care of business no matter what may come.
If you’re not already, when will you start paying yourself first?
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.