Show 8 - The Power of Paying Yourself First

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Tracking your spending doesn't automatically lead to Growing your finances because you might still overspend. It's actually very likely that you'll overspend if you uh even with your you tracking your spending because there's always something. There's always an emergency there's always a new bill there's always a really good deal there's always another thing that you could do. There's always more food to buy there's always always always if you go off of okay I have this much left in my bank account what can I do you're never going to have any left in your bank account.

Welcome to the teacher money show the podcast dedicated to helping Educators like yourself navigate your unique Financial challenges and unlock your financial superpowers. I'm your host Shaun Morgan a full-time teacher and entrepreneur and I'm here to help teachers navigate everything related to your money. Whether you have questions about budgeting on a teacher's salary managing student loans increasing your income or making the most of your benefits I'm here to make money less confusing more empowering and a tool you can use to focus on what matters most. So whether you're a seasoned teacher looking for fresh insights or a new educator navigating your first paycheck this podcast is your go-to resource for all things money related so if you're ready to have a richer wallet classroom and life let's Dive In.

The contents of this podcast are informational in nature and are not legal or tax advice and neither I nor my guests are engaged in the provision of legal tax or any other advice. You should not act upon this information without first seeking appropriate advice from an accountant financial planner lawyer or other professional.

Hello today it's just you and me. I don't have a guest on today I wanted to thank everyone who's listened so far it's been a wonderful. I've I've really loved the guests we've had uh I just want to remind you if you want to get coaching whatever your financial question is if you have a very specific question you want help with or if you're not even sure where to start if you are just wanting to make sure your goals are good goals whatever it is you need help with whatever coaching you need I would love to help you through it so if you would like to come on the podcast for coaching just go to teachermoneyshow.com/guest teachermoneyshow.com/guest there's a form for you to fill out there just lets me know you're interested I'll reach out to you we'll set up a time for us to to have a coaching session I'd love to talk to you. Now if you are worried about you know wow I don't want to go on the show you know everyone will know that I'm getting coaching. If that's you don't worry about it we have ways of doing this show anonymously so if you would like to come on the show anonymously we can definitely do that so that way you can get the coaching you need without worrying about whether or not people will recognize you. So with that in mind please go to teachermoneyshow.com/guest and I'd love to interview you on the show.

Alright uh today we're talking about the second most important principle of finances so remember we talked about the first most important principle which was tracking your spending. If you track your spending you can get that feedback you need to be able to overcome spending in places you don't even know where you're going and then you can start to grow your finances from there. But tracking your spending doesn't automatically lead to Growing your finances because you might still overspend. It's actually very likely that you'll overspend if you uh even with your you tracking your spending because there's always something there's always an emergency. There's always a new bill. There's always a really good deal. There's always another thing that you could do. There's always more food to buy. There's always always always... If you go off of okay I have this much left in my bank account what can I do you're never going to have any left in your bank account. So tracking your spending helps you know what you're spending money on so you can know where you can cut but it doesn't always lead to more money in your bank at the end of the day especially if you leave that money in your checking account. So that way say it grows to two three four five thousand then you suddenly realize oh I could go on a really awesome vacation with this and it's all gone again so what you need to do is pay yourself first is that it pay yourself first.

Now you might be wondering what do you mean pay yourself first aren't I getting all of my money I'm I'm being paid what how do I pay myself first well paying yourself first what what it looks like is before you put money aside for anything else you put money aside savings and savings can mean a lot of different things emergency funds is one form of savings savings for a a later uh purchase is another form of savings but mostly besides the emergency fund. So emergency fund comes first but mostly when I say pay yourself first I mean put money aside for the future for investing for uh just having money that will grow in your bank account so that way you are getting richer over time that's what I mean by paying yourself first so not paying for future spending I mean you will spend that money in the future when you retire but not like a short-term goal that that's one form of saving that's not what we're talking about we're talking about taking money out of your account that you'd be spending and putting it somewhere that it'll grow or or uh increase over time that is paying yourself first.

There's a lot of ways you can do this. You can put money into a just a separate savings account. Uh that would be like an emergency fund would be a savings account because you don't want that money to be hard to access in the event of an emergency. I really like to put that money aside into like a separate Bank entirely. I have an online bank that is separate from all my other bankings that way I can just make that where my savings go and I I try not to touch it um and that will let that grow and grow and grow. So that's putting money aside per emergency fund. Uh then you can also count money that goes into your retirement accounts whether that's an HSA or a 401k or 403b or an IRA any of those 457 right any of those are going to be a good uh retirement spot for your funds to pay yourself first. And then beyond that you can pay yourself first by paying for or putting money into a investable brokerage accounts that's where you're investing outside of retirement accounts in stocks or investing in real estate or investing in I don't know rare Art if that's your thing I wouldn't recommend that if unless you're an art teacher who really knows a lot about rare art um but the point is that you can invest in a lot of different things um to pay yourself first. But what you're doing is you're taking money away from your spending account and putting it somewhere else.

Okay why do we do this? We've probably all heard the analogy of the big rocks right we've got your your sand in the bottom and then your small rocks in the middle medium rocks and then big rocks and it overflows the jar right but if you put in your big rocks first and then your medium sized rocks and then your small rocks and then your sand it all fits nicely inside of a jar. Alright that's the analogy that's often used for essential standards which is entirely up to the teacher which makes the standards that they write that you're supposed to teach subjective and anyway that kind of bothers me but we have our essential standards that are the big rocks and then we put in our supplementary standards for our medium rocks then we put in our guiding other standards I don't know what we call the the medium and then we put in the stuff we like to do for fun that's our our sand. Whatever the point is that we use this analogy I think I've heard every single professional development start of the year ever because we like this analogy to help us understand how we handle having so much to do as a teacher. The same thing applies here with money because usually what we think is what is the first most important thing bills gotta pay my bills so I can keep my house keep your car keep the power on. Next most important thing food alright I want to go hungry. And then oh I got some more money so I'll you know go out this night and I'll go watch a movie and I'll buy these new shoes or whatever you do with that and then you're like and whatever I have left over at the end I'll I'll save and invest. But there isn't money left over at the end right that's our problem we know this because if we always had money left over at the end with that mindset we wouldn't have a money problem. So we need to make sure that we shift that and we pay ourselves first and then we pay our bills and then we buy our food and other necessities and then we do the extra fun stuff on the end and if you do that you will guaranteed have more money over time. If you try and just shove investing and saving at the end you're always going to be frustrated about not being able to save. So that is the big rock the big rock that has to go in first is in investing and if we if we don't do that um we won't be able to invest.

so I want to drive this point home with a quote:

Okay there's a fantastic book called the Richest Man in Babylon. I highly recommend it okay uh just to give you an idea the book is an allegory it's a story that teaches financial principles but it's a story it's about a guy who starts off I believe he's a shield maker no he's not a shield maker he's like a bronzeman something like that I don't remember I'd have to go back and read it again but he's just you know regular worker in Babylon and he gets a chance to talk to the richest man in Babylon and he asks him how can I you know how can I make it? How can I become rich like you? Um and this quote is the answer to that question and then it goes on and teaches more and more money principles in story throughout the book it's actually a series of short stories that are struck together um but it teaches them in such a way that it's accessible to almost anybody. I read this with a group of seventh graders and and they nailed it they understood it they got it they're like oh yeah this is what they're saying that they tell me that the finest principle why it made sense what they were going to do about it um and then we were able to you know do all sorts of great discussions about it so this is very accessible anybody can understand the principles being taught in this book. I highly recommend that if you have not read the richest man in Babylon or if it's been a long time since you've read the richest man in Babylon go back and read it it is worth it.

But here's the answer give them to the question uh what should I do to be rich like you? The Richest Man in Babylon says pay yourself first right or he says a part of all you earn is yours to keep that's his way of saying pay yourself first a part of all you earns yours to keep and then the main character responds with this "'but all I earn is mine to keep is it not?' I demanded and then the richest man replies 'far from it do you not pay the Garment maker do you not pay the sandal maker do you not pay for the things you eat can you live in Babylon without spending what you have to show for your earnings of the past month but for the past year fool you pay to everyone but yourself dollar you labor for others as well be a slave and work for you but your master gives you to eat and where if you did keep yourself one tenth of all you earn how much would you have in 10 years?'

"'My knowledge of numbers did not forsake me,' this is the main character responding 'and I answered as much as I earned in one year' 'You speak about half the truth he retorted every gold piece you save is a slave to work for you every copper it earns is its child that also can earn for you if you would become wealthy then what you save must earn and its children must earn that all may help to give to you the abundance you crave. A part of all you earn is yours to keep it should be not less than a tenth no matter how little you earn it can be as much more as you can afford pay yourself first do not buy from the clothes maker and the sandal maker more than you can pay out of the rest and still have enough for food and charity and Penance to the Gods."

I love this quote. This right here this side this quote this small little quote that I read for you really just sums up everything about Good Financial sense. Uh and there's a lot of you know nuance and and learning that goes into making sure you understand how to properly use your money in our modern context and with our modern tools and yada yada. But if you can just understand this pay yourself first not less than one tenth of what you earn and then you invested which is what he talks about by putting these uh the the pieces of gold you know to work for every copper its child can earn you Etc. you know that's investing that's trying to receive a return on your investment. And then uh use whatever's left over from that 10th to buy you know the things that you need but then I also love this at the end and we'll talk more about this later but sub enough for food okay that's necessities charity and Penance to the gods so make sure that you can also help others all right we don't want to um stop being kind humans for the sake of money uh I think that that is a a beautiful lesson wrapped up in right there and we'll talk about this more uh but just remember that we want to pay ourselves first make sure we can survive and don't forget to help others any way that you can.

Okay what counts as paying yourself first? Well paying yourself personally is building an emergency fund or investment for the future uh putting money into your pocket to stay there. Um so just remember that if you are building that emergency fund or investing for the future you are paying yourself first so I know we've already talked about this but I just want to remind yourself that it's not saving for a trip it's not putting money aside for um buying a new game or whether whatever it is that you do it is not spending money on your classroom okay? It is putting money in a separate account, it cannot be in your checking account, for emergencies and investing for the future. Uh I really like to do it this way this is how I set it up I like to have my money go from my checking account to my saving account okay so I have an automatic withdrawal from where my money gets deposited and it goes over to a saving account and then from the saving account I can have the money go from the saving account to the investing right so that way I have this continual flow from checking into saving to investing and then if the saving account is my emergency fund if I have to crank that money down I can turn off the investment nozzle right I can turn off or turn down how much is going out of that for investing well I build back up my emergency fund.

That's just a way that I think really works it keeps your checking in one spot you're saving it in another spot once again different banks is really helpful because if your savings can go into your checkings by the simple click of a button uh it's not really in savings right a separate bank at least makes it so you have to wait one two you know three days sometimes for the money to transfer um so it puts a little bit of an extra shield of protection between your checking and your saving account and then moving on to the Investments wherever you want to invest you can move it into uh taxable brokerage or to real estate Investments or to other investing opportunities which we'll talk about later of course I also really like investing in retirement accounts as well.

So the most important part of this though is to make sure that you do this automatically. If you try and pay yourself first every month and you have to do it you're not going to do it, okay? Human beings make emotional decisions we easily forget what we're supposed to do or we say well this month is different because... every month is different. So we have to make it automatic you have to make the decisions when you are lucid and logical and using that you know prefrontal cortex thing whatever you call that instead of using you know the the lower parts of your brain which is what we usually make decisions with. When you can say okay the money is automatically going to withdraw on the first of the month for my checking and go to my saving and then the money for my investments will automatically withdraw on the second of the month from my saving to my investing there you go you don't have to think about it for month month to month. This way you consistently do the right thing without having to consistently do the right thing so I highly highly highly recommend that if you're going to pay yourself first you do it automatically.

Paying yourself first is the first step to having more money actually grow in your account every single month. If every teacher paid themselves first teachers would no longer be in financial trouble. It's a fact. Yes we want more money because we deserve it because we work hard because we are not getting paid our worth, but we can take control and the first step to doing that is paying yourself first.

Now one more thing I want to address is paying off debt paying yourself first? In my opinion yes because you can either take that money and invest it for five six seven eight ten twelve percent depending on you know where you're at and what you're investing in or which is not guaranteed or you can get you know six percent automatically by paying down you know a student loan or you know eight percent almost these days by paying on a mortgage if you have a higher mortgage payment or 25% by paying off a credit card right? If you can put money towards debts that have high interest rates you are putting yourself first because you are reducing your overall interest payments on those debts. Now there is a gray Zone right if you're under six percent you usually can get more in Investments not saying that you should not pay off any debts underneath six percent but maybe you can consider if you don't have any of those higher interest debts just you know continually making small payments on those those lower debts and then putting your excess money into Investments because logically mathematically you know graphically over time that would make you more money but if you really hate debt and you're just tired of it you want to get out blow the debt up I am never going to tell anyone not to get out of debt.

Getting out of this so freeing, so good for your mental health for your soul and it is paying yourself first so if you are in debt just want to let you know that paying yourself first means paying off your debt. That is that is part of this. Once you paid off your debt don't start using that money to live the high life you're used to putting that money towards debt already just roll that into your your investment vehicle and you are off to the races. That is an amazing uh strategy.Taking whatever you were paying off say you had money on 45 a month minimum payment here and a 65 a month minimum payment there and a 50 a month minimum payment there that's like what 160 bucks I don't know I don't I don't do math that fast but somewhere in there you know instead of giving yourself 160 dollar raise to go buy shoes every month you can give yourself 160 investment that will grow and grow grow to tens of thousands of dollars over the course of your career.

Alright so that is paying yourself first very very important principle highly recommend it if you want to be wealthy pay yourself first. And remember if you are wanting to figure out what you can do to pay yourself first if you're trying to figure out what uh the best course of action is to to to get there uh go ahead and go to teachermoneyshow.com/guest fill out the form and I'd love to have you on for a coaching session and I'll see you then.

If you'd like to come on the podcast for coaching to share an expert opinion or just to talk about a topic you think is relevant I'd love to talk to you just fill out the form at teachermoneyshow.com/guest I look forward to talking with you.