Features & Sacco Leadership

The golden rule of saving money: Pay yourself first

The golden rule of saving money: Pay yourself first

Saving money is one of the most important habits for achieving financial stability and success. However, many people find it difficult to save consistently due to various financial obligations and spending habits. Among the many strategies for building a solid financial foundation, one stands out as the golden rule of saving money: “Pay Yourself First.”

This rule, widely regarded by financial experts, is simple yet powerful. It encourages you to prioritize saving a portion of your income before spending on anything else. By making saving a non-negotiable habit, you can consistently grow your wealth, create a safety net, and work towards achieving your financial goals.

What is the Golden Rule: Pay Yourself First

“Pay yourself first” means that as soon as you receive your income, you set aside a percentage for savings before paying bills, covering expenses, or making discretionary purchases. This approach helps ensure that saving becomes a priority, not an afterthought.

Most people tend to save whatever is left over after spending, but this method often results in little or no savings. The golden rule reverses that thinking by treating savings like a fixed expense that you must pay regularly, much like rent or utility bills.

For example, if you receive a monthly salary of Sh100,000 and you decide to follow the golden rule by saving 20%, you would set aside Sh20,000 immediately into a savings or investment account. The remaining Sh80,000 would then be available for bills, groceries, entertainment, and other expenses.

Why the Golden Rule Works

The golden rule of saving money works for several key reasons:

  1. By paying yourself first, you develop a consistent savings habit. Over time, even small amounts saved regularly can grow into significant sums due to the power of compounding interest. This discipline builds a financial cushion that can cover emergencies or fund major life goals like buying a house or retiring comfortably.
  2. When you save first, you are left with a fixed amount for spending, which forces you to budget more effectively. This helps reduce impulsive spending and encourages more thoughtful financial decisions.
  3. Saving first means you’re actively working towards long-term financial goals rather than merely reacting to immediate needs or desires. This mindset shift can lead to greater financial security and the ability to achieve milestones like building an emergency fund, investing for the future, or planning for retirement.
  4. When you have a savings buffer, you are less likely to rely on loans or credit cards to handle unexpected expenses. This reduces the risk of accumulating high-interest debt and improves your overall financial health.

How to Apply the Golden Rule of Saving Money

To successfully apply the golden rule of saving, follow these practical steps:

  1. Decide how much of your income you want to save. Financial experts often recommend saving at least 20% of your income, but you can start with a smaller percentage and gradually increase it as your financial situation improves.
  2. To make saving easier and more consistent, set up an automatic transfer from your checking account to your savings account or investment portfolio. This way, the money is saved before you have a chance to spend it.
  3. Regularly review your savings to ensure you are on track to meet your goals. Tracking your progress helps keep you motivated and makes it easier to adjust your savings rate if needed.
  4. One of the first goals when applying the golden rule should be building an emergency fund that covers at least 3-6 months of living expenses. This fund will protect you in case of job loss, medical emergencies, or other unexpected events.
  5. Once you’ve built your emergency fund, consider investing in long-term assets like stocks, bonds, or real estate to grow your wealth. Investments offer the potential for higher returns than traditional savings accounts, especially over the long term.
  6. As your income grows, resist the temptation to increase your spending in proportion to your earnings. Instead, increase your savings rate whenever possible. This will help you maintain financial discipline and grow your wealth even faster.

Challenges to Paying Yourself First

While the golden rule of saving is a straightforward concept, there are challenges that may arise, particularly for individuals with tight budgets or irregular incomes. Here are some ways to overcome these obstacles:

  1. If your income is low or your expenses are high, saving a large percentage may feel impossible. Start small—save as little as 5% of your income—and increase your savings rate gradually. The key is to develop the habit of saving regularly, even if the amount is modest at first.
  2. For those with variable income, such as freelancers or commission-based workers, it can be difficult to save a fixed percentage each month. In this case, aim to save a higher percentage during months of higher earnings to compensate for leaner periods.
  3. Emergencies and unexpected bills can derail your savings plans. This is why building an emergency fund is so important. Once you have an emergency fund, unexpected expenses won’t force you to dip into your regular savings.

 

Andrew Walyaula
Author: Andrew Walyaula

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

Andrew Walyaula

About Author

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

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