Pay Yourself First! | Series 6.2

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Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

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Hello, and welcome back to the second episode now

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of our new year series, Set Your Compass For the New Year. As

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always, if you like what you're hearing, please make sure to

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subscribe, follow us on Apple podcasts wherever you listen.

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Clicking that star leaving the review, it really helps us reach

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quite literally the millions of other young families out there

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that are just like you. Now last week, we discussed goals. So as

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you get ready for this new year, how you should do this with your

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spouse, questions to ask yourself to really focus on what

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matters most, and how goal setting in general is to help

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you achieve more things more quickly than you otherwise would

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have. Not to make you feel like a failure. Remember, no one out

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there hits 100% of their goals. That isn't the point. So if you

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haven't checked out that episode yet, definitely do that soon.

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Today's episode is titled Pay Yourself First!, which is an

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easy, self explanatory title in many ways. But really something

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that way too many people don't actually do. We set our compass

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in that first episode with the goals. But we also need that

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ship to actually sail us to where we want it to go. The

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thing is, ships aren't free, they cost a lot of money. And we

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likely need to save, pull funds together over time to be able to

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really get the ship that we need to get to where we want to go.

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So the goal for today's episode then is for you to be inspired

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to see how much you're currently saving towards you, towards

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yourself and if needed or possible, increase it so you can

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be on a faster pace to reach those goals. Every month, you

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pay the grocery store, you pay the heating company, you pay the

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car dealership. You're taking your hard earned money and the

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first thing people think too many times is what can I buy,

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which translates into "who can I give my money away to?" Give

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some to yourself every month. You are the most important

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person there is. Paying yourself first means putting money aside

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for you and for your goals. If you're trying to buy a new car

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next year, that may be the bank. If that means a second home in 5

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to 7 years down the road, that might mean a general investment

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account. If it's retirement, that could be your 401(k) at

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work or Roth IRA. So you get the idea. Where you put it kind of

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depends on what it is and when you need it. But when you put it

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into any of these accounts, you are at least putting it towards

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you.

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So how much should you pay yourself every month? "How much

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am I worth?" I'd say the minimum is 5% of your gross income. So

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if you earn $100,000 a year, then at least $5,000 a year at a

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bare minimum. That's like if you don't really like yourself that

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much almost. But 10% to 15% really is much more ideal

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because you know, hey, you're really important, you deserve

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more. We have clients that go you know as high as 20%. But it

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needs to be something. You have to pay yourself something. You

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are worth something. I'm not saying you need to just save as

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much as possible and you know, eat cat food for dinner and take

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no vacations. That's not the point of any of it. But you need

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to treat yourself fairly. You need to save something material

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towards you.

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Now an exercise we've discussed before to help you see where you

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are and what you could potentially save is the 36%

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Ratio, what we call Backdoor BudgetingTM with our clients. So

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what this says is that 36% of your gross monthly income, so

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before taxes, can be used for items specifically to you. So

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not taxes, not groceries, not cell phones, TVs, things like

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that, that everyone has. I'm talking about things such as a

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mortgage, or rent, car loans or leases, student loans, anything

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you're currently saving towards yourself, maybe in a 401(k) or

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you know, a savings account in the bank, something like that.

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You know, these are things that some people have, and some

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people don't. So if you make $120,000 a year just to keep it

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easy, then that's $10,000 a month. Using that 36% ratio we

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just spoke about, you get down to $3,600 a month for those

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specific items. So $10,000 a month gross before tax times 36%

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is $3,600 a month that you have to do something with the

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specific to you items. So let's say that right now you're saving

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nothing, you're paying yourself nothing, you give all your money

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away to other people. But you have a mortgage of $2,000 a

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month and a car loan of $600 a month let's say. So that's

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$2,600 a month on the specific to you items list. Now the

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difference between the $3,600 that we calculated, and the

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$2,600 a month comes out to $1,000 a month. That's what's

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left between those two numbers.

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So this is what you should have additional available to save

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towards you. It's the starting point. Might be a little bit

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higher in your life, might be a little bit lower but on average,

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that is what you should be able to save every month and likely

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what you know, your bank accounts may be growing at. For

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people that just kind of ignore this, and they're not really

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looking at it and their bank accounts go up over time, when

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we meet with them as a client, and we go through this 36%

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ratio, we say, is it possible, you know, in this case, is it

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possible, you know, Mr. & Mrs. Client, that your accounts at

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the bank have been growing over the over time, by roughly $1,000

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a month? And they stop and they think about it? They say, Yeah,

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I think that sounds about right, I think we could probably save

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that because our bank accounts go up by you know, about $1,000

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a month. You know, this is a great starting point to start

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saving money towards you. Paying yourself first. So in this

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example, it just happened to come out to roughly $1,000 a

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month, $12,000 a year, which is 10%. That's a substantial or at

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least a material amount to pay for your yourself. Pay towards

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you first, because you're important.

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So thanks for tuning in today. And join us next week for the

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episode called Use Lots of Buckets, exclamation point,

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where now that you know how much you're paying yourself or how

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much you can pay yourself, how separating this into buckets,

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where you're saving for these various goals can make them much

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easier to see and therefore much easier to achieve.

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Overall, though, if you're able to implement what we covered

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today, then that's fantastic. You have less to worry about

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than before, focus more on enjoying life, kind of the whole

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point. So if you are wanting help though with these things,

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or you have questions you need help in answering, just check

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out the ASK JOE section on the show's website

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www.enjoymore30s.com. That's enjoymore30s.com. Till next

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week. Thanks for joining me today and I look forward to

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connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax, or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor Member FINRA/SIPC.