What Do You Mean Pay Me First?


What’s up Internet? My name is Ian Bloom and this is Nerd Finance. I’m your resident financial life planner and a huge nerd! Since this is my first video I wanted to give you a rundown of what you’re in for.

This is a series of informal financial videos that answer questions that I get every day. So, I’ll drop in a few nerdy references to try to make things fun, but ultimately you’ve been forewarned. This is financial content.

So, paying yourself first is our topic today and not in the traditional way it’s been addressed. Most people talk about paying yourself first on articles, videos, blogs, it’s it’s all over the place because it is such an important part of planning. But, they don’t really discuss why you, should do it what you should do it with, and they definitely don’t reference Runescape. So to start off with let me get to the Runescape reference.

Paying yourself first is all about incremental gains, right? It’s about accumulating money over time that would otherwise be used for going out to eat or something. Well, Runescape is all about delayed gratification and an incremental gain. So, in Runescape you might get 25 XP per mining copper, but to get your mining level up you might need 1500 XP. That means you’re gonna have to mine a lot of copper to get there. However, doing that has its own reward. At the end of it you have a higher mining level.

You can do other stuff that’s pretty similar in the real world. Saving money over time allows you options and choices.

So, here’s the good news. You already probably pay yourself first somewhere. Most people save in a 401k or retirement plan over time and that counts that as paying yourself first. It means that you’re deferring some of your paycheck without the ability to interfere with it to a retirement account. And while retirement accounts don’t count as an emergency fund, because you really shouldn’t be accessing them ahead of retirement in most circumstances, they do still have incremental gains over time and therefore can be a very significant amount of your retirement income stream later on.

Another place you can pay yourself first is in banks through automatic transfers from and checking to your savings account. They’re pretty easy to set up at most banks and all that needs to be is maybe $25 a month, or whatever feels comfortable for you. But, having that move from your checking to your savings account, whatever the amount that is comfortable for you, will accumulate over time and it’ll save you from the next popped tire, broken water heater, or something like that. That would otherwise be put on your credit card and accumulate interest.

Now, that’s not to say credit cards are all bad, because in some cases if you pay off your credit card every month you are actually paying yourself first in a small way. Credit card points and miles are a good thing to accumulate for travel purposes or for some of the niceties in life…the luxuries that we like to spend our money on. Let’s face it, people like to take vacations. And so you would probably be spending money on vacations anyway. Well, if you accumulate those travel miles instead and you use those instead of mostly money to fund your vacations then that’s somewhat saving money as long as the money that you didn’t use on the vacations ends up in your savings account, of course.

The last place to pay yourself first, or the last way you can, is to accumulate money for other investments. Whether that’s a brokerage account, Roth, or other types of savings. You may have extra at some point in your life and accumulating that will only help you in the long term. Now what vehicle you use might be dependent on your individual situation, so I’m not going to recommend specifics here today.

That’s all for today. The video was probably a review for some of you, so I promise we’ll dive into something more intricate and complex next episode. If you have any ideas for future episodes or you would like to engage with me I’m @openworldfp on Twitter at @ianhbloom there for me individually. You can also find my company on Facebook and LinkedIn. Lastly, ianbloom@openworldfp.com is my email, and you can find my website openworldfp.com where you can also look at what my services would be like as a financial life planner – if all this sounds like a lot to you. Thanks so much! I hope you have a great day!

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