151: The Power of “Paying Yourself First” (AKA Write Your Own Checkbook)- Lessons from The Richest Man in Babylon
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Have you heard of “The Richest Man in Babylon” by George S. Clason?
It’s a book that’s been around for ages, but it’s still super relevant today. The book tells these cool stories set in ancient Babylon that teach us all kinds of valuable lessons about money.
One of the most important concepts the book teaches is to always pay yourself first. ☝🏻
What does that mean exactly?
Well, basically, before you pay anyone else – your bills, your employees, whatever – you should make sure you’re paying yourself. That might sound a bit selfish, but it’s actually really smart.
In this episode, we’re going to dive into why paying yourself first is so important, especially if you’re an entrepreneur/ business owner.
👉 Trust us, neglecting this advice can lead to some serious problems. But don’t worry, we’ll break it down for you and make sure you come away with some actionable tips to improve your financial game.
Paying Yourself First – The Concept
If you’re like us, you might be wondering what the concept of “paying yourself first” really means.
Let’s take a step back to “The Richest Man in Babylon”, which is this really amazing book 📖 that’s been around forever, but the lessons in it are still super relevant today.
One of the biggest takeaways from the book is that if you want to be financially successful, you should always “pay yourself first.” 🤟❤️
What does that mean? Well, it’s all about prioritizing your own financial well-being. Before you pay any bills or buy anything, you should set aside some money for saving or investing. Ideally, you want to aim for at least 10% of your income, but anything is better than nothing.
Now, you might be thinking, “but what about all my other expenses?”
Don’t worry, you can still pay your bills and buy groceries 🧾 – just make sure you’re setting aside that portion for yourself first.
By consistently saving and investing, you’ll slowly build up a financial cushion that can help protect you from unexpected expenses or even help you retire comfortably.
So, let’s all take a cue from “The Richest Man in Babylon” and start prioritizing our own financial well-being. Your future self will thank you!
The Dangers of Neglecting This Principle – Living Paycheck to Paycheck
Believe it or not, some entrepreneurs/business owners live paycheck to paycheck, even though their business is making bank. It might sound crazy, but it can happen if they’re not paying themselves first. 💸
When entrepreneurs don’t prioritize setting aside some money for themselves, they’re basically putting all their eggs in one basket – their business. 😖😖
And while their business might be doing well now, who knows what could happen in the future?
Markets can be unpredictable and things can change in the blink of an eye.
So, by not paying themselves first entrepreneurs are setting themselves up to be entirely dependent on their business income.
And that’s a risky move. ⚠️
If their business income suddenly drops or they have an unexpected expense, they could find themselves in a pretty tight spot. 😨😨
That’s why it’s so important for entrepreneurs to pay themselves first – even if it’s just a small amount.
By building up personal savings, they’ll have a financial cushion to fall back on if things ever get rough. And trust us, it’s always better to be safe than sorry when it comes to your finances.
Insufficient Emergency Funds
So picture this: you’re an entrepreneur, and your venture is your baby.
You pour your heart 💜 and soul into it every single day, and it’s finally starting to pay off. But, you haven’t been paying yourself first, so all your hard-earned cash is tied up in your business.
Then, out of nowhere, life throws you a curveball – maybe you break your leg and can’t work for a while 💔, or your roof starts leaking and needs to be fixed ASAP. 😞😞
Without any personal savings to fall back on, you’re stuck in a tough spot. You might have to rely on high-interest debt just to cover the costs of unexpected expenses, which can quickly spiral out of control.
The stress of the situation can be overwhelming, and it can even put your entire business at risk. If you’re not careful, one financial setback could be all it takes to bring everything crashing down.
That’s why it’s so important to have a personal financial safety net 🔐, even if you’re an entrepreneur. By paying yourself first and building up personal savings, you’ll have a cushion to fall back on if something unexpected happens.
You’ll be able to handle the expense without putting your business or your personal finances in jeopardy.
Inadequate Retirement Savings
As an entrepreneur, it can be easy to get so caught up in your day-to-day operations that you forget to plan for the future.
But if you’re not setting aside money for retirement, you could be in for a rude awakening down the line.
Without enough personal savings, you might find yourself working well into your golden years just to make ends meet. And let’s be real – who wants to spend their retirement years working? Not us, that’s for sure! ☹️☹️
By not prioritizing your financial well-being, you risk not being able to retire comfortably or maintain the lifestyle you desire. And that’s no way to live! So, if you’re a business owner, make sure you’re paying yourself first and building up personal savings.
Lack of Diversification
If you’re relying solely on your venture for income 💰, you might be putting yourself in a pretty risky situation. Think about it – if your business hits a rough patch or the market takes a downturn, your entire livelihood could be at stake. That’s a lot of pressure to put on one single enterprise!
But fear not, friends‼️
There’s a way to reduce your financial vulnerability and diversify your income streams – and it all starts with paying yourself first.
And because you pay yourself first, you are able to invest in other assets or ventures, and build up personal savings, you can create a safety net for yourself and your family.
Not only does this provide a cushion in case your business hits a rough patch, but it also allows you to explore new opportunities and potential revenue streams.
Who knows – maybe your side hustle will turn into your main gig someday!
So, don’t put all your eggs in one basket. 🧺
Difficulty in Securing Loans
Did you know that neglecting personal savings can have an impact on your ability to secure loans? It’s true!
When you apply for a loan, lenders take a close look at your creditworthiness to assess whether or not you’re a good risk.
And guess what? Your personal financial stability plays a big role in that assessment.
If you don’t have a healthy savings account, lenders may view you as a higher risk for defaulting on the loan. That’s because a lack of savings can be seen as a sign of financial irresponsibility or instability.
And let’s be honest, nobody wants to be seen that way! 😩😩
So, if you want to increase your chances of getting approved for a loan, make sure you’re prioritizing your personal savings.
Not only will it help you establish financial stability, but it can also improve your creditworthiness and make you a more attractive borrower.
Paying Yourself First is Not…
Now, before you start thinking about all the cool stuff you could buy with that extra cash 🪙, let’s get one thing straight – paying yourself first is not about splurging on luxury items or flashy gadgets.
In fact, the idea behind paying yourself first is all about building wealth passively, without taking away from your main sources of income. It’s like a delicate balancing act between focusing on your active income (i.e., your job or business) and growing your wealth on the side.
Think of it like a sliding scale ⚖️ – the more you prioritize your personal savings and investments, the more you can shift towards building wealth passively.
And the beauty of it is that the more wealth you accumulate, the more financial freedom you have to pursue your passions and interests. 😏😏
So, don’t be fooled by the misconception that paying yourself first means sacrificing your current lifestyle for some far-off goal. It’s about finding a balance that works for you and using your resources wisely to build a secure financial future.
Lessons from Nature
Let’s take a break from business talk and imagine a tree 🌳 growing in your backyard.
Like any tree, it needs sunlight and water to grow big and strong. Your active income is like the sunlight that provides you with immediate nourishment, while your passive income is like the water that feeds your financial growth over time.
Just like a tree, you’ll need a lot of sunlight (active income) when you’re starting out. But as you grow and your roots spread, you’ll be able to tap into more water sources (passive income) to keep your financial health in check.
Growing your wealth is a long-term game, and it takes patience and discipline to succeed.
You need to prioritize your personal savings and investments, and over time, you’ll start to see the balance shift from active income to passive income.
And before you know it, you’ll have built up a sustainable financial foundation that lets you focus on your dreams and goals.
Some examples of passive income sources include stocks that pay dividends, rental income from real estate, or even royalties from creative works like music or books.
By embracing the timeless wisdom of “paying yourself first” and staying committed to your financial goals, anyone can achieve financial freedom and enjoy a more secure and prosperous future. ✨
👉 Remember, prioritizing personal savings and investments is a crucial step toward building a strong financial foundation and achieving long-term wealth accumulation. 🌈
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