The No. 1 Key Toward Achieving Financial Freedom

by Ken Chee

The No. 1 Key Toward Achieving Financial Freedom - PAY YOURSELF FIRST

This principle states that we should put aside a portion of our monthly income into an account called, "My Account" first. The key word is FIRST and you do not touch this money (at least for the first 2 years of doing so). 95% of people out there do the opposite. They will pay everything else: BILLS (rental, mortgage, mobile, utilities, transport etc) before themselves (after whatever is leftover). There is a vast different between 2 approaches with the former giving you the foundation of reinvested fund (expand your asset) and limiting your expenses (liabilities).





The recommended min amount of paying yourself is 10% of your monthly income. You should increase the percentage amount as you ages depending on your retirement goals. Personally, after M&Y, I change my mindset and start paying myself 70% (I am aggressive in achieving financial freedom and willing to forgo instant gratification) and after 3 1/2 years, I am seeing this principle having a big impact in my life:

1. My investment options have widened, thus tapping into more investment opportunities;

2. My bargaining power is higher because I have low needs;

3. I can stomach certain calculated risk especially in new business ventures apart from my usual investment asset classes, and

4. I plough the annual return in getting more return. This resulted in producing more return at a compounding rate! The snowball effect is amazing after I keep doing it for 3 years.

Some financial books and program put this as key stepping stone toward financial freedom. And yet, seldom people practise it in real life. Just take a look below on one article that was published in a magazine recently,

(***Very important! Visit http://www.ken-chee.com/2006/12/27/pay-yourself-first/ for actual creative visuals and video clips to gain a full picture of this case study)

None of the interviewees said that they pay themselves first! And the most interesting reply came from the lady on the top left corner, she stated,

"Karaoke, drinks and a good meal with friends, to celebrate surviving another month, about $50 each. I've just bought a large-screen TV! It cost me half my pay, but it's an investment." - Ng xxx xxx, 27, accountant

There is no right and wrong and I respect the interviewee's way of life. Most importantly, her particular reply reflects a reality in our society:

1. Many are surviving paycheck to paycheck. And most hate what they do for a living (especially after 3-5 years). Thus, majority needs some "retail therapy" to make them feel happy and gain that pyschological balance for the moment. But the lousy feeling will set in again since they keep hating and complaining what they do. for a living. As time passes, the "retail therapy" session will get more expensive especially when some "empathic financial insituitions" who understand your pain and sincerely want you to feel "good". This whole cycle will repeat itself again till you digged a deeper and deeper financial hole without seeing it and get trapped eventually. Usual example like knowing anyone who burst 5 credit cards limit? Or seeing friends or colleagues starved themselves silly in order to pay for the monthly installment of that fancy car or high end Condo they bought in order to fit in?). I learnt that "Many spend their life earning a paycheck rather than designing their life". In another word, many PROSTITUTE their time for money! A nicer term would be "Rat Race".

2. Many are still financially unaware on the true definition on what is an Asset and Liability. TV is an asset? I nearly flipped after reading the short article especially coming out from an accountant. Before you challenge me on any accounting definition, allow me to share with you how the rich define asset = anything that put money in your pocket, liability = anything that take money out from your pocket. Period. Simple right but yet the school has never taught us anything about managing money?

Disclaimer: The above definition excludes children/parents or your loved ones.

So go on. Start a Pay Yourself plan and stick with it while you are young and able. You will see your life will change (Please consult a professional for those who are nose deep in debt. Your approach might be differ).

P/S: Forward this article to your friends if you feel that they might benefit from it as long as my bio line is copied with it. Thanks!


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About the author:
Ken Chee is the Group CEO of Integrated Media Group Pte Ltd. The companies specialized in ROI (Return on Investment) marketing and have spearheaded regional and local campaign in Asia. The content may be used only in its entirety with all links and his bio included. Visit www.kenchee.com for IDEA THAT SELLS!

Published at Dec, 28 '06 , Read 977 times.

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User comments:

alan at Jun, 06 '07 14:44
As a financial planner I sincerely have to agree with the statement of pay yourself first. It really is one of the only true tried and tested methods of becoming wealthy if not down right rich. Now truly is the time to start paying yourself, not after the next paycheck...this will never happen. After paying myself 50% of my paycheck I will be enjoying a well paid retired life at 50. Compounding interest is the best way to make your money work for you...use it.
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