Pay Yourself First

y yourself first means making saving and investing your top priority. For most people with a small amount of money with which to start, the key to building up wealth lies in developing the habit of adding to one's investments regularly and putting the money where it can do the most good. The rewards can really add up. For example, suppose a person takes $5,900 and puts it in a savings account where it earns a safe 2.16 percent interest. Twenty years later that same deposit has grown to $7,666 and change.

That is fine if that is what you want to do. If you had a highter goal- perhaps $250,000, and you had 20 years to reach that goal. If your are willing to investigate other investment alternatives that have the potential to boost the return above earnings of bank accounts, you can do much better.

Historically the stocks of large companies have produced an average annual return of more that 10 percent. At 10 percent, with $5000 to start and a goal of $250,000, you must contribute $279 a month to the investment account. With an 11 percent return, $235 a month will grow to a quarter of a million dollars in 20 years.

Pay yourself first is a key financial concept. It must be applied correctly. In order to execute this key principle correctly, you must save all of the money you can. If you are in debt, you will need to pay off your debt as soon as possible. This means paying more than the monthly minimums. If you are paying large amounts of interest on your credit, you will be unable to pay yourself.

Let's say you have a credit card balance of $1000. Credit card interest runs anywhere from 10 to 22 percent compounded. If you saved $200, then paid the minimum balance on your credit card, you really aren't saving. The $200 would be earning let's say 10 percent interest, but you will be paying 20 percent interest on the credit card balance. It would be in your best financial interest to pay the $200 towards the balance on the credit card.

Pay yourself first means you must stay out of debt. If you are in debt, then you need to get of it. Only then will you reap the full benefits of paying yourself first. Pay Yourself First Home

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