Everyone knows how hard it is to save money when you pay all your bills first. It is virtually impossible. Thus, the best principle is to pay yourself first and THEN pay your bills. Only by doing so will you be able to save money.
Our expenses have a way of taking up whatever amount of income we have. This happens regardless of your income level. Many people who change income brackets can attest to the fact that the extra money they thought they would have is never available. As income grows, so do expenses therefore wealth is always a relative thing. And because of this you will never save money unless you pay yourself first. This is one of the reasons that people who have a significant increase in income usually find little if any excess money compared to their past situation. The fact is that as income grows so do expenses. Thus, what separates the financial successes from the financial failures is discipline more than any other attribute.
The easiest way to go about doing this is to establish a budget based upon only 90% of your available income. Thus, you are removing 10% of it off the top. This amount should be placed aside in some sort of savings or investments plan. With time this amount will grow larger and eventually grow to an amount you can allocate to some type of investment. This money should be exclusive of any money going into a regular retirement or investment plan.
Paying yourself has psychological rewards above and beyond the financial rewards. Financial frustrations often come from having nothing to show for the hours spent at a job or career. This technique gives you a reward for that time spent and as a result you will feel much better.
So what is the purpose of this money? That is for you to decide. The important thing is that it is something personal and that it benefits you in a psychological sense. This is a good funding source for a family vacation or a weekend getaway. Or perhaps it could be used to fund some artistic pursuit you have always planned to do but never made the time for. Whatever you to decide to do make sure it is selfish in some sense. This is supposed to be an indulgence of a sort and how you decide to indulge is up to you. Of course, there is nothing wrong with simply investing it and letting it grow. The choice is all up to you.
