Sunday, March 7, 2010

Start thy purse to fattening

Start thy purse to fattening. This is the first of the seven rules that George S. Clason lays out in The Richest Man in Babylon.

No matter what happens, save at least one-tenth of your earnings for yourself. Do this before you do anything else with your money.

Now, I happen to believe the first thing you should do with your money is tithe what you can, generally this is about 10%. So Clason and I disagree on this matter.

I say pay God. Then pay yourself.

But, let's stick with pay yourself first.

The easiest way to do this is an automatic paycheck deduction.

If you work for any kind of company, you can easily do this.

As an ESPN employee, I can directly send 10% to my 401k. If you have this option and are just starting off paying yourself, do this.

There is a number of benefits:
  1. It's easy to do. Most employers will allow you to do this through a company-controlled intranet.
  2. It's foolproof. If you are having a hard time putting away one-tenth, this removes the temptation to spend. Basically, you don't have a chance to spend it, and you make a budget like you don't even have that money.
  3. It's matched. Many employers will match contributions to 401k's up to a certain point. For me, that's 4.5%.
Even if your employer doesn't offer a 401k, open an IRA or even a savings account and have your payroll department send one-tenth of your check directly to one of these accounts.

As you get further into paying yourself, you may want to diversify that 10% a little bit instead of plunging it all into one account, which is great, but for those starting out, give this a try.

Do you pay yourself one-tenth your income? How do you do it? What works best for you?
blog comments powered by Disqus