3 Things I have learnt from The Concept of Paying Yourself

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COVID 19 has taken a big toll on many people's finances. For those who have been prudent with their money, having emergency funds or even investments, somehow are navigating this COVID storm. The wise people who paid themselves are clearly seeing the benefit and as Lockdowns are being eased world over, getting this piece of financial education and living by the principles could help many of us. I once read somewhere that a wise man sees danger and takes precaution, so I can firmly say that another crisis will befall us but we need to take the lessons in this period and have them at heart.

Whenever we walk into a mall, grocery shop, we are paying the owners of the business. When we pay utility bills or rent, we pay the utility companies and the landlords. Yes, money moves faster than it came in and the only missing link on the payment schedule is you and I. How can we pay ourselves? to avoid living from one income to another, to break the cycle of being broke at the end of the month or day, some people have more months at the end than money.

“When you don’t pay yourself, you are trapped working for others” – Dr. Sunday Adelaja

John a young man in his mid-30’s earns 1000 Usd a month. However, whenever the month ends, he is always saying, he can’t wait for his end of month payment and this is because his account is bleeding and if the payment doesn’t come in the shortest time possible, he will have to borrow to enable him to survive as he awaits his payment. John shouldn’t be experiencing financial difficulty with the amount of the money he earns but his situation isn’t different from many people who live from paycheck to paycheck. With that amount of money, you would expect John to be more financially secure but a Janitor or waiter who earns 80 to 100 Usd and has been paying his or herself could be doing so much better than John.

While reading an article from Medium.com by Nicolas Cole about “5 serious things you should know about money before you turn 30”, at the age of 23, he sought out a family friend who was a trader and money expert to be taught about money, from one of his points, he mentioned that the fastest way to start saving and investing money is to “Tax” yourself. I hadn’t had of the concept of taxing oneself but I read through and said this is a good concept or analogy.

"We normally pay taxes to the government but never to ourselves" he said. He reiterated by saying that, “When trying to build wealth for yourself, habits are more important than “quick, high-yield investments”. I totally agree with that concept because the Get-rich-quick mentality has burned many hands, spoilt many relationships, and destroyed many people’s financial futures. To analogize the “Tax” concept, he quoted O’Leary who wrote the book, “Truth On Men, Women, and Money: 50 Common Money Mistakes and How To Fix Them”- O’Leary says people really struggle to save or invest money because they live in a constant state of thinking they don’t have enough money, to begin with. He said that O’Leary said that if one-day Government decided everyone was going to be taxed $100 per month, then people would somehow figure out how to get an extra $100 per month. Nicolas says someone would pick a side hustle, choose to eat out a few times or make sacrifices that reduce expenses so that the $100 can be realized. So Nicolas’ question is why not self-impose that same tax and pay yourself?

From the Book, “How To Secure Your Financial Future” by Dr. Sunday Adelaja, here are a list of 3 key points I learn about the concept of paying yourself, this can be applied by anyone who earns a monthly, daily or quarterly income, it can also apply to those who have no money at all.

1 Having a salary or an income is not equal to paying yourself

Dr. Sunday Adelaja says that the first thing that happens when your income is allocated to you is that the Government pays itself, through taxes. Depending on your country or workplace, there could be other deductions like loan payments, insurance, social security, union or association fees, etc. He reiterated and said that even pensions that are removed from your income aren’t enough when you retire.

2 To pay yourself does not mean to “REWARD” yourself by buying yourself liabilities that stroke your ego

Because people work so hard, normally a vacation is a perfect way to reward themselves. Dr. Sunday says that isn’t paying yourself. He says paying yourself means you must acquire assets and reduce liabilities. Dr. Sunday explains this concept based on the character Raj and says that. “If Raj had saved the vacation money and took his family on a more modest holiday, he would have been able to set aside over $10,000 to buy assets. Liabilities are those things that take money from you. When you put aside money for your future you are paying yourself and building a secured financial future. When you set aside money for your children’s future; for school fees and such, you are paying yourself.

 3 Paying yourself is not limited only to those who are employed

Dr. Sunday says small and medium enterprises make up the larger part of the economic growth across Africa and developing countries. He says some people do work as freelance and don’t have a regular income but to be able to secure one’s financial future, they need to know their necessary expenses at a given month and hence save all amounts above one’s necessary expenses. He says when income is low in low seasons, it necessitates why someone has to build passive income from investments so that relying on one income isn’t the norm. He encourages people to pay themselves by putting aside 30% towards future savings and investment.

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