Pay yourself first the
power of self-discipline
If you cannot get
control of yourself, do not try to get rich.
It makes no sense to
invest, make money, and blow it. It is the lack of
self-discipline that
causes most lottery winners to go broke soon after
winning millions. It is
the lack of self-discipline that causes people who
get a raise to
immediately go out and buy a new car or take a cruise.
It is difficult to say
which of the 10 steps is the most important.
But of all the steps,
this step is probably the most difficult to master
if it is not already a
part of your makeup. I would venture to say that
personal self-discipline
is the number-one delineating factor between
the rich, the poor,
and the middle class.
Simply put, people who have low self-esteem and low
tolerance for
financial pressure can
never be rich. As I have said, a lesson learned from
my rich dad was that the
world will push you around. The world pushes
people around, not
because other people are bullies, but because the
individual lacks
internal control and discipline. People who lack internal
fortitude often become
victims of those who have self-discipline.
In the entrepreneur
classes I teach, I constantly remind people
to not focus on their
product, service, or widget, but to focus on
developing management
skills.
The three most important
management skills necessary to start your own business are management of:
1. Cash flow
2. People
3. Personal time
I would say the skills
to manage these three apply to anything, not
just entrepreneurs. The
three matter in the way you live your life as an
individual, or as part
of a family, a business, a charitable organization,
a city, or a nation.
Each of these skills is
enhanced by the mastery of self-discipline.
I do not take the
saying, “Pay yourself first,” lightly.
The statement, “Pay yourself first,” comes from George Clason’s
book, The Richest Man in Babylon. Millions of copies have been sold.
But while millions of
people freely repeat that powerful statement,
few follow the advice.
As I said, financial
literacy allows one to read numbers, and numbers tell the story. By looking at
a person’s income statement and balance sheet, I can readily see if people who
spout the words,
“Pay yourself first,”
Actually, practice what they
preach.
A picture is worth a
thousand words. So let’s review the financial
statements of people who
pay themselves first against someone who doesn’t.
Study the diagrams and
see if you can pick up some distinctions.
Again, it has to do with
understanding cash flow, which tells the story.
Most people look at the
numbers and miss the story.
INCOME STATEMENT
BALANCE SHEET
Job
Assets
Income
Expenses
Liabilities
Salary
Taxes
Rent
Food
Save
Invest
People Who Pay
Themselves First
Do you see it? The
diagram reflects the actions of individuals who
choose to pay themselves
first. Each month, they allocate money to
their asset column
before they pay their monthly expenses. Although
millions of people have
read Clason’s book and understand the words,
“Pay yourself first,” in reality they pay themselves last.
Now I can hear the howls
from those of you who sincerely believe
in paying your bills
first. And I can hear all the responsible people who
pay their bills on time.
I am not saying be irresponsible and not pay your
bills. All I am saying
is do what the book says, which is: Pay yourself first.
And the previous diagram
is the correct accounting picture of that action.
Job
Assets
Income
INCOME STATEMENT
BALANCE SHEET
Expenses
Liabilities
Salary
Taxes
Rent
Food
People Who Pay Everyone Else First
If you can truly begin
to understand the power of cash flow,
you will soon realize
what is wrong with the previous diagram, or why
90 percent of people
work hard all their lives and need government
support like Social
Security when they are no longer able to work.
Kim and I have had many
bookkeepers, accountants, and bankers
who have had a major
problem with this way of looking at, “Pay
yourself first.” The
reason is that these financial professionals actually
do what the masses do:
They pay themselves last.
There have been times in
my life when, for whatever reason, cash
flow was far less than
my bills. I still paid myself first. My accountant
and bookkeeper screamed
in panic, “They’re going to come after you.
The IRS is going to put
you in jail.” “You’re going to ruin your credit
rating.” “They’ll cut
off the electricity.” I still paid myself first.
“Why?” you ask. Because
that’s what the story,
The Richest Man In Babylon,
was all about: the power of self-discipline and the power of
internal fortitude. As
my rich dad taught me the first month. I worked
for him, most people
allow the world to push them around. A bill
collector calls and you
“pay or else.” A sales clerk says, “Oh, just put it
on your charge card.”
Your real estate agent tells you, “Go ahead.
The government allows
you a tax deduction on your home.” That is
what the book is really
about—having the guts to go against the tide
and get rich. You may
not be weak, but when it comes to money,
many people get wimpy.
I am not saying be
irresponsible. The reason I don’t have high
credit-card debt, and
doodad debt, is because I pay myself first. The
reason I minimize my
income is because I don’t want to pay it to the
government. That is why
my income comes from my asset column,
through a Nevada
corporation. If I work for money, the government
takes it.
Although I pay my
bills last,
I am financially astute enough to not get into
a tough financial situation. I don’t like consumer debt. I actually have
liabilities that are higher than 99 percent of the population, but I don’t pay
for them. Other people pay for my liabilities. They’re called TENANTS.
So, rule number one in
paying yourself first is: Don’t get into
consumer debt in the
first place. Although I pay my bills last, I set it up
to have only small
unimportant bills that are due.
When I occasionally
come up short, I still pay myself
first. I let
the creditors and even
the government scream. I like it when they get
tough. Why? Because
those guys do me a favor. They inspire me to go
out and create more
money. So, I pay myself first, invest the money,
and let the creditors
yell. I generally pay them right away anyway. Kim
and I have excellent
credit. We just don’t cave in to pressure and spend
our savings or liquidate
stocks to pay for consumer debt. That is not
too financially
intelligent.
To successfully pay
yourself first, keep the following in mind:
1. Don’t get into large debt positions that you
have to pay for. Keep
your expenses low. Build
up assets first. Then buy the big house or
nice car. Being stuck in
the Rat Race is not intelligent.
2. When you come up short, let the pressure
build and don’t dip
into your savings or
investments. Use the pressure to inspire
your financial genius to
come up with new ways of making more
money, and then pay your
bills. You will have increased your
ability to make more
money as well as your financial intelligence.
So many times I have
gotten into financial hot water and used my
brain to create more
income while staunchly defending the assets in
my asset column. My
bookkeeper has screamed and dived for cover, but I
was like a good soldier
defending the fort—Fort Assets.
Poor people have poor
habits. A common bad habit is innocently
called “dipping into
savings.” The rich know that savings are only used to
create more money, not
to pay bills.
I know that sounds
tough, but as I said, if you’re not tough inside,
the world will always
push you around anyway.
If you do not like
financial pressure, then find a formula that works
for you. A good one is
to cut expenses, put your money in the bank, pay
more than your fair
share of income tax, buy safe mutual funds, and take
the vow of the average.
But this violates the pay-yourself-first rule.
Chapter Eight: Getting
Started
This rule does not
encourage self-sacrifice or
financial abstinence. It
doesn’t mean pay
yourself first and starve. Life was meant to be enjoyed.
If you call on your
financial genius, you can have all the goodies of
life,
get rich, and pay bills. And that is financial intelligence.
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