However, since this has become a takiyakalam in the industry, I thought that it could very well be picked up and explained since, most of the people who are not from this domain, find it confusing and ineffective
Are you thinking it wrong?
Just to clear the air about a accepted notion, paying yourself first (PYF) is not as same as paying your electricity bills, phone bills, groceries etc. Yes, you are paying for these services and utilities because they are used by YOU but think about who you are paying it to. All these payments can be categorized as
“Paying for yourself”: Thus, while you are footing the bill for yourself, but you are paying to the company that provides electricity to you, the supermarket that sells you grocery and so on. However, we are not talking about this concept. Rather, we are asking you to do this:
Pay yourself first and Pay for yourself later!!
The above mentioned line may seem a bit but believe me, it is not!
Why “Pay myself first”?
So, to continue with the above-mentioned premise, paying yourself first basically implies saving some amount from your income to create a pool of funds that could support you in later part of your life or in some crisis situation. Thus, the primary motive of this concept is to compel you to set aside a portion of your income and then pay out all your bills or other expenses.
Since you ask about the significance of this indispensable concept, let me start off with a few counter-questions. (They might be hurtful but be sure that they are also beneficial)
1. What if your boss suddenly comes to you and says “You are no longer required on the job”
2. What if a medical emergency strikes in the family and you are required to foot a huge bill?
3. What if a natural calamity washes away your business/house or other prized assets and you are still supposed to cater to your and family needs?
Scary, is it? Well, these situations are not preposterous and numerous examples show that in an instance, people have lost their financial freedom and might because of unforeseen situations.
As Sheldon says : “ No one thinks it will happen until it happens”.
Therefore, why wait for something to happen. The better way is to create a pool of funds from the very beginning so that your financial life is not threatened when you are in caught in such a situation. By paying yourself first, you can create a emergency/savings fund, which is extremely necessary in order to provide a cover when you need it the most.
I hope you are sold on the concept of “Paying yourself first” and if you are not, then look at the three questions above and try to answer them. If your answer is a “Umm, Aaahh” or any other hesitation sound, then its time that you believe in it.
How to go about paying myself first?
Some things are easier said than done and the funda of paying yourself first is one of that category. But, it does not mean that its too tough or complex and requires some hard work to accomplish. In fact, paying yourself first is quite easy if you can combine three things i.e Attitude, technology and discipline.
So, here are some tips/suggestions or whatever you wanna call it :
A. Open a new account and keep it separate: Since the objective is to save for yourself, it is best that you have a separate account for the same. It is preferable to keep the money in a savings account or a flexi FD account so as to ensure liquidity of funds.
B. Get a direct debit facility: Since it is really tough transferring the money from your salary account to a savings account ( Tough because we might be lazy :P), it is prudent to get a direct debit facility for the account. This will ensure that funds from your income get transferred automatically without any hassle.
C. Hotlist the debit card: Cut the fire and there shall be no smoke. I mean that if you hotlist or inactivate the debit card for this account, then there would not be a means to spend even if you might have the urge.
That’s it! Quite simple, isn’t it?
Just one last thing: The amount that you are planning to set aside is completely dependent on you i.e your lifestyle, expenses etc and you should decide it soon!!
As always, if you have any ideas/opinions, the comments section is all yours 🙂
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action
Thank you Yuva members for organising such a fun and informative lecture. We enjoyed it a lot. Meeting and learning from Mihir Sir was really an amazing experience. And this is not only our feeling but all the students enjoyed his lecture very much and look forward to many such events.