Pay Yourself First! | Series 6.2 - Enjoy More 30s: Family Finance

Episode 2

Pay Yourself First! | Series 6.2

Published on: 10th January, 2022

We need our ship to actually sail us to where we want it to go; the thing is, ships aren't free!

  • So the goal for today's episode then is for you to be inspired to see how much you're currently saving towards you, towards yourself and if needed or possible, increase it so you can be on a faster pace to reach those goals. (01:33)
  • So how much should you pay yourself every month? "How much am I worth?" I'd say the minimum is 5% of your gross income. (02:39)
  • So what this says is that 36% of your gross monthly income, so before taxes, can be used for items specifically to you. (03:40)

Quote for the episode: "Pay towards you first, because you're important!" (06:14)

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Transcript
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Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly:

Hello, and welcome back to the second episode now

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of our new year series, Set Your Compass For the New Year. As

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always, if you like what you're hearing, please make sure to

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subscribe, follow us on Apple podcasts wherever you listen.

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Clicking that star leaving the review, it really helps us reach

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quite literally the millions of other young families out there

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that are just like you. Now last week, we discussed goals. So as

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you get ready for this new year, how you should do this with your

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spouse, questions to ask yourself to really focus on what

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matters most, and how goal setting in general is to help

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you achieve more things more quickly than you otherwise would

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have. Not to make you feel like a failure. Remember, no one out

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there hits 100% of their goals. That isn't the point. So if you

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haven't checked out that episode yet, definitely do that soon.

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Today's episode is titled Pay Yourself First!, which is an

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easy, self explanatory title in many ways. But really something

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that way too many people don't actually do. We set our compass

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in that first episode with the goals. But we also need that

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ship to actually sail us to where we want it to go. The

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thing is, ships aren't free, they cost a lot of money. And we

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likely need to save, pull funds together over time to be able to

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really get the ship that we need to get to where we want to go.

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So the goal for today's episode then is for you to be inspired

Joseph Okaly:

to see how much you're currently saving towards you, towards

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yourself and if needed or possible, increase it so you can

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be on a faster pace to reach those goals. Every month, you

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pay the grocery store, you pay the heating company, you pay the

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car dealership. You're taking your hard earned money and the

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first thing people think too many times is what can I buy,

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which translates into "who can I give my money away to?" Give

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some to yourself every month. You are the most important

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person there is. Paying yourself first means putting money aside

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for you and for your goals. If you're trying to buy a new car

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next year, that may be the bank. If that means a second home in 5

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to 7 years down the road, that might mean a general investment

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account. If it's retirement, that could be your 401(k) at

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work or Roth IRA. So you get the idea. Where you put it kind of

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depends on what it is and when you need it. But when you put it

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into any of these accounts, you are at least putting it towards

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you.

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So how much should you pay yourself every month? "How much

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am I worth?" I'd say the minimum is 5% of your gross income. So

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if you earn $100,000 a year, then at least $5,000 a year at a

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bare minimum. That's like if you don't really like yourself that

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much almost. But 10% to 15% really is much more ideal

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because you know, hey, you're really important, you deserve

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more. We have clients that go you know as high as 20%. But it

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needs to be something. You have to pay yourself something. You

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are worth something. I'm not saying you need to just save as

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much as possible and you know, eat cat food for dinner and take

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no vacations. That's not the point of any of it. But you need

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to treat yourself fairly. You need to save something material

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towards you.

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Now an exercise we've discussed before to help you see where you

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are and what you could potentially save is the 36%

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Ratio, what we call Backdoor BudgetingTM with our clients. So

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what this says is that 36% of your gross monthly income, so

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before taxes, can be used for items specifically to you. So

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not taxes, not groceries, not cell phones, TVs, things like

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that, that everyone has. I'm talking about things such as a

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mortgage, or rent, car loans or leases, student loans, anything

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you're currently saving towards yourself, maybe in a 401(k) or

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you know, a savings account in the bank, something like that.

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You know, these are things that some people have, and some

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people don't. So if you make $120,000 a year just to keep it

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easy, then that's $10,000 a month. Using that 36% ratio we

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just spoke about, you get down to $3,600 a month for those

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specific items. So $10,000 a month gross before tax times 36%

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is $3,600 a month that you have to do something with the

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specific to you items. So let's say that right now you're saving

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nothing, you're paying yourself nothing, you give all your money

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away to other people. But you have a mortgage of $2,000 a

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month and a car loan of $600 a month let's say. So that's

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$2,600 a month on the specific to you items list. Now the

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difference between the $3,600 that we calculated, and the

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$2,600 a month comes out to $1,000 a month. That's what's

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left between those two numbers.

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So this is what you should have additional available to save

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towards you. It's the starting point. Might be a little bit

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higher in your life, might be a little bit lower but on average,

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that is what you should be able to save every month and likely

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what you know, your bank accounts may be growing at. For

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people that just kind of ignore this, and they're not really

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looking at it and their bank accounts go up over time, when

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we meet with them as a client, and we go through this 36%

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ratio, we say, is it possible, you know, in this case, is it

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possible, you know, Mr. & Mrs. Client, that your accounts at

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the bank have been growing over the over time, by roughly $1,000

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a month? And they stop and they think about it? They say, Yeah,

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I think that sounds about right, I think we could probably save

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that because our bank accounts go up by you know, about $1,000

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a month. You know, this is a great starting point to start

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saving money towards you. Paying yourself first. So in this

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example, it just happened to come out to roughly $1,000 a

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month, $12,000 a year, which is 10%. That's a substantial or at

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least a material amount to pay for your yourself. Pay towards

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you first, because you're important.

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So thanks for tuning in today. And join us next week for the

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episode called Use Lots of Buckets, exclamation point,

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where now that you know how much you're paying yourself or how

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much you can pay yourself, how separating this into buckets,

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where you're saving for these various goals can make them much

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easier to see and therefore much easier to achieve.

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Overall, though, if you're able to implement what we covered

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today, then that's fantastic. You have less to worry about

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than before, focus more on enjoying life, kind of the whole

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point. So if you are wanting help though with these things,

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or you have questions you need help in answering, just check

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out the ASK JOE section on the show's website

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www.enjoymore30s.com. That's enjoymore30s.com. Till next

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week. Thanks for joining me today and I look forward to

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connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax, or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor Member FINRA/SIPC.

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About the Podcast

Enjoy More 30s: Family Finance
Family Finance for Young Professionals.
Young families receive little to no personal finance help. We all grow up to have jobs and money, yet our education system focuses on Shakespeare and Algebra. Even professional advice can be hard to come by, with the majority of the industry chasing retirees and existing wealth.

Joe Okaly's podcast is aiming to change this, providing personal financial advice geared specifically to professionals with young families. This podcast is dedicated to making life more enjoyable for young families, by hitting on the financial topics that tend to weigh on us, stress us out, and distract our focus from simply enjoying life.

Joseph P Okaly is a CFP Certified Financial Advisor who fits directly in with who this podcast is focused on - a young professional with a family. With over a decade of experience as an advisor, there is passion and knowledge to make a difference.

Securities offered through TFS Securities, Inc., Advisory Services through TFS Advisory Services, a SEC Registered Investment Advisor Member FINRA / SIPC. TFS Securities, Inc. located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.