Pay Yourself First (and Reap the Benefits Later)
If you’re not paying yourself first, you could be setting yourself up for failure in retirement.
There are two kinds of procrastination—the kind where you know exactly what you need to do but don’t want to do it and the kind where you have so many things to do that you are lost and don’t know where to start. There’s not much anyone can help you with if you suffer from the first kind. But if you suffer from the second, there is a solution. It starts with finding one top priority and going after it.
Now, think about that top priority with regard to money and finances. If your top priority is not paying yourself first, then maybe you should think again.
What Is Paying Yourself First?
Paying yourself first is the concept that paying your future self is as important as paying any of your current bills or expenditures. It means that saving and investing for your future isn’t what you do with “extra money,” but one of your key expenses. Even if retirement seems far off in the distance and the need to put away money seems less urgent than paying your mortgage, car payment, and credit card bills, it won’t seem that way as you get closer to retirement.
The truth of the matter is that your retirement day is closer today than it was yesterday, and it will be even closer tomorrow. With that in mind, it’s earier to see how paying yourself first takes on as much urgency and utility as paying any of your ongoing expenses.
In short, if you pay yourself first, you’re much more likely to have enough money with which to retire comfortably.
How Do You Do It?
Too many retirement “strategies” involve paying all your current bills and day-to-day expenses, and then taking the leftovers every pay period or every month and socking some away for future use. This can be a challenge for a veterinarian who owns or shares a practice because there is always the question of how much to include as earnings for yourself and how much to reinvest in the practice.
This can also be a challenge because of lifestyle creep, which is the tendency to spend more as we earn more. Lifestyle creep is a very real phenomenon and one that isn’t all bad, but it raises a potential problem in that as your income improves, the “extra” funds you have at the end of each period may not increase. That means you could spend prime earning years stashing away only the bare minimum for your retirement.
What about reinvesting earnings back into your practice? As much as you may want to do this, you should consider it only after you have paid both your current and future selves.
One way to do that is to have part of your paycheck deposited directly into a separate account—either a retirement plan or your own savings account. This can be done easily through your bank by setting up a recurring deposit.
Or, say you pay off a car loan or (finally) finish paying off a student loan—simply continue that payment, but to a separate bank account or investment vehicle. If you’re getting by just fine now with your current bills, any income you start to earn over and above can be redirected to your future self painlessly.
The key concept of paying yourself first is simple: You are as important as any of those other debtors.