The concept of “pay yourself first” is a transformative approach to managing your finances. At its heart, it urges you to prioritize building your future before meeting other financial obligations. In a world where much of your hard-earned money is absorbed by taxes, fees, and everyday expenses, the idea of setting aside a portion for your personal growth and wealth creation is both empowering and essential. This principle is not just about saving money—it is a call to nurture your potential and create lasting assets that work for you over time.

Understanding Income: Beyond the Take-Home Pay

Most of us see our income as the money that lands in our bank account—the net amount after deductions. However, the reality behind that figure is more complex. When an employer offers a salary, the amount quoted often hides the true cost of employing someone. Taxes, social contributions, and other mandatory payments are all deducted even before the money reaches you. For instance, when you receive what appears to be your net salary, your employer has already allocated funds for personal income tax, insurance contributions, and additional fees that contribute to various state budgets.

Imagine this: if your net salary is $3,000, the actual sum paid by your employer is significantly higher. Calculations reveal that while it might seem that only a modest percentage is taken away, the reality is that the state collects not only your personal income tax but also additional social contributions, adding up to a considerable amount. This means that a large portion of your income is automatically diverted to support public services and state programs. The consequences of these deductions are not always visible, but they underscore the importance of understanding where your money goes and how little is left for your personal financial growth.

Imagine this: if your net salary is $3,000, the actual sum paid by your employer is significantly higher. Calculations reveal that while it might seem that only a modest percentage is taken away, the reality is that the state collects not only your personal income tax but also additional social contributions, adding up to a considerable amount. This means that a large portion of your income is automatically diverted to support public services and state programs. The consequences of these deductions are not always visible, but they underscore the importance of understanding where your money goes and how little is left for your personal financial growth.

The Hidden Cost of Everyday Spending

After your paycheck is processed, a further invisible tax is imposed on nearly every purchase you make. Whether you are buying a cup of coffee, filling up your car with gasoline, or shopping for clothes, value-added tax (VAT) is embedded in the price. In many cases, this tax represents a significant percentage of the cost, silently eroding your spending power over time. In contrast to some countries where taxes are clearly itemized at checkout, in many parts of the world, the tax is already built into the price tag, leaving you unaware of how much is actually being diverted from your hard-earned money.

This subtle depletion of your resources means that even when you are careful with your spending, a part of your income is continuously handed over to the state. This systemic extraction of funds can leave you feeling as if you are working tirelessly yet never truly benefiting from your efforts. The reality is that every day, as you engage in normal transactions, you contribute to the funding of public services and infrastructure—services that, while essential, may not directly enrich your personal financial well-being.

The True Meaning of Paying Yourself First

So, what does it mean to pay yourself first? It means that the moment you receive your income, you should immediately set aside a portion for investment in assets—assets that have the potential to grow and provide a source of passive income over time. This is not merely about saving money in a bank account; it is about making strategic decisions to purchase assets that appreciate and generate additional revenue.

Consider the difference between assets and liabilities. An asset, such as a modest apartment or shares in a reliable company, is something that generates income or appreciates in value. For example, owning shares can yield dividends that grow with time, creating a compounding effect on your wealth. On the other hand, liabilities—like an expensive home that strains your budget or a car that quickly depreciates—can sap your financial resources rather than build them.

Many people are tempted to economize by cutting out small luxuries, believing that this will free up money for the future. Yet, if you never actively invest in assets, you risk falling into a pattern of consumption where your income is consistently drained by taxes and everyday expenditures. Without deliberate action to allocate funds for asset-building, you may end up with a comfortable lifestyle now, but without the financial security or independence you might have achieved in the long term.

The Cost of Neglecting Self-Investment

There is a common misconception that by simply avoiding unnecessary spending—like skipping an occasional beer—you are saving enough to secure your future. However, the real challenge lies not just in reducing expenses but in actively channeling those savings into investments that build wealth. Consider the humorous anecdote of someone who never spends on leisure but also never invests in a tangible asset like a car or property. Over the decades, while others may have indulged occasionally, they have also taken steps to secure their financial future by investing in assets that generate passive income.

The financial education that underpins this principle is crucial. Many people remain unaware of the mechanisms behind their earnings and the hidden costs imposed by the state. When you begin to understand the true impact of taxes and everyday fees, the importance of paying yourself first becomes clear. Every ruble or dollar set aside as an investment is a step toward financial independence—a way to ensure that your labor is not entirely absorbed by external forces.

Creating a Future of Financial Freedom

Envision your future not as a collection of fleeting expenses but as an accumulation of assets that steadily increase in value and yield. Paying yourself first means making a conscious commitment to invest in things that appreciate over time. It might be a carefully chosen property, a portfolio of stocks with a reliable track record, or even a small business venture that aligns with your passions and expertise. By investing in these assets, you are not merely saving money; you are building a personal safety net that will support you even when regular income streams may falter.

This approach requires discipline and a shift in mindset. Rather than viewing income solely as money to be spent on current pleasures, you begin to see it as a tool for building a future that provides security and opportunities. It is a call to embrace the responsibility of self-care in financial matters, ensuring that you are not left vulnerable by a system that, by design, extracts a significant share of your income. When you pay yourself first, you are declaring that your future is worth protecting, and you are taking control of your financial destiny.

Reflecting on the Broader Implications

The principle of paying yourself first extends beyond individual finance—it reflects a broader understanding of the economy. Every time you invest in an asset, you are contributing to the creation of value that goes beyond the immediate transaction. Assets, unlike bank deposits, have the potential to generate income independently, creating a multiplier effect that benefits not just you but the economy as a whole. The act of investing in assets signifies a commitment to sustainable growth, one that recognizes the inevitable role of taxes and fees while still carving out a space for personal prosperity.

It is important to recognize that the state will always have its share. The funds collected through taxes and fees support essential services and infrastructure, ensuring that society functions smoothly. However, this systemic collection should not prevent you from safeguarding your future. By understanding the dynamics of income distribution and the subtle ways in which money is diverted, you are empowered to take strategic action. Your financial education becomes a shield, protecting you from the erosive effects of a system that might otherwise leave you with little to show for your efforts.

Embracing the Principle with Passion and Purpose

The transformation that comes from paying yourself first is profound. It is a call to rise above the passive acceptance of your paycheck's hidden deductions and to actively engage in building a secure financial future. The decision to invest in assets is not merely a financial maneuver—it is a declaration of self-worth. It means prioritizing your dreams, your aspirations, and your long-term security over the immediate gratification of spending.

When you make the commitment to pay yourself first, you embark on a path of self-respect and determination. You acknowledge that while the state and other institutions will always claim a portion of your income, there remains a part that is unequivocally yours. This remaining portion, when wisely invested, becomes a powerful tool for achieving financial independence. It is a call to be proactive, to learn continuously, and to make informed decisions that will shape not only your bank balance but also your quality of life.

Actionable Steps to Start Paying Yourself First

• Calculate your net worth: List your assets and liabilities to get a clear picture of your current financial position.
• Set a specific savings goal: Decide on a percentage of your income to dedicate to investing (e.g., 10%, 15%, 20%). Consider what feels manageable but also challenging enough to make a real difference.
• Automate your savings: Set up automatic transfers from your checking account to your investment account. This "set it and forget it" approach removes the temptation to spend the money.
• Address Barriers: Feeling overwhelmed? Start small. Even a small amount invested consistently can make a big difference over time due to compounding. Don't be afraid to seek advice from a qualified financial advisor.

Call to action

Start paying yourself first today. Take one small step towards securing your financial future, and you'll be amazed at the difference it makes.

References

• Bach, David. The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich. Crown Business, 2005. This work emphasizes automating your finances to build wealth effortlessly. The relevant information emphasizes setting up automatic transfers to savings and investment accounts, illustrating the core concept of "paying yourself first". (Relevant throughout the book, particularly Chapters 1-3, pp. 1-70).