Chapter 2: Pay Yourself First

Goals without ACTIONS is simply a DREAM. In the First Chapter we have defined the PRIORITIES. To make it a reality we must do something. And the very first thing to do is CREATE a BUDGET. When we attended the Seminar of Brother Bo Sanchez, we learned the Pay Yourself Principle. Actually the complete version is PAY GOD AND YOURSEL FIRST!

Allocate 10% of your INCOME to Tithes. We believe that when you GIVE you will RECEIVE. . Then allocate 20% for your FUTURE. This is the target allocation for your Investments and Protection. Then make sure that you do the right budget management of the 70% for your Needs and Lifestyle.

Budgeting is a fundamental aspect of personal financial management that ensures individuals can meet their financial goals, manage expenses, and build wealth over time. Among the various budgeting strategies, "Pay Yourself First" (PYF) stands out as a powerful and disciplined approach to securing one's financial future. This method prioritizes setting aside a portion of income for savings and investments before addressing other expenses, fostering a mindset of savings discipline and long-term financial security. 

The concept of "Pay Yourself First" is rooted in the idea that saving and investing should be a non-negotiable part of your budget, much like paying bills or rent. Instead of waiting to see what remains after expenses, PYF involves allocating a predetermined amount or percentage of income immediately upon receipt. This approach shifts the focus from spending first and saving what's left—often a small or inconsistent sum—to saving first and spending what's left. Warren Buffet advocates “save first and spend what is left”.

To effectively implement PYF, the first step is to assess your total income and expenses. List down all sources of INCOME, and all the EXPENSES and all those items where your money goes. These could include building an emergency fund, saving for retirement, purchasing a home, or funding education. Once goals are set, determine a realistic savings target that aligns with your income and lifestyle. For many, starting with a modest percentage—such as 10% or 15% of income—can be an attainable commitment that grows over time.

Start Small and keep the discipline to make it big. You can start saving 20PHP/day and that can be 600PHP/month or 7200/year. Then you can grow this 50PHP, or even higher once the discipline comes in. And if you invest this properly, the 20PHP per day can turn into more than 600K in 20 years, the 50PHP per day can turn into 1.5M in 20 years if invested on a rate of return of about 12% average! 

One tool we can use nowadays is Automated Fund Transfers. Automation plays a critical role in successfully applying the "Pay Yourself First" principle. Setting up automatic transfers from your checking account to savings or investment accounts ensures that the prioritized savings are made consistently and without temptation to delay or skip. This action leverages the power of automation to create a disciplined savings habit, making it easier to stay on track even when personal motivation fluctuates.

Another key aspect of PYF is identifying and reducing unnecessary expenses. By analyzing spending habits, individuals often discover discretionary expenses that can be minimized or eliminated, freeing up more money for savings. For example, cutting back on dining out, subscription services, or impulse purchases can significantly boost savings capacity. The goal is to live within means and make conscious financial choices that support long-term stability.

When we started, we simply cut dining out on a weekend. We still go our for lunch after mass if there is a special occasion. We look into   what we buy for our groceries and made sure we only buy the essentials. And we keep it simple like one shampoo bottle for everyone in the family unlike buying for each one’s desire. We also checked and control our electric and water consumption. Iwas aksaya talaga.

Additionally, flexibility is essential. Life circumstances and income levels change, so regularly reviewing and adjusting savings contributions ensures that the strategy remains sustainable. If income increases, consider increasing the percentage allocated to savings. Conversely, during financial hardships, maintaining some level of savings—even at a reduced amount—helps preserve the habit. The consistency of saving over time is more important than the initial amount saved.

The benefits of paying oneself first are abundant. It promotes a savings culture, reduces financial stress, and accelerates wealth accumulation. Moreover, it instills discipline and prioritizes future financial security over immediate pleasures. Over time, the habit of paying oneself first can lead to significant progress toward financial independence, providing peace of mind and a sense of control over one’s financial destiny.

In conclusion, budgeting with a "Pay Yourself First" strategy is a practical and effective way to build wealth, achieve financial goals, and develop disciplined money habits. By automating savings, setting clear goals, and maintaining flexibility, individuals can ensure that saving becomes a regular and enduring part of their financial routine. Ultimately, paying oneself first is not just about saving money; it’s about investing in your future and creating a foundation for financial stability and success.