Recently we’ve encountered a trend among a sizable percentage of clients and non-clients alike. It’s an attitude toward cash inflow that I’ve seen many times before but seems even more prevalent in today’s economy.
The Millionaire Mindset is the idea of paying others ahead of yourself, or better put, the “omission” of paying yourself first.
You’ve heard us label progress along the financial baby steps as “financial traction.” We often contrast this with the “rate of consumption.”
In other words, how much of your income goes to consumption vs. how much goes to gain traction.
The is a distinction between paying others vs. paying ourselves.
The vast majority of our income goes to paying others.
When I pay my bills (cell phone, internet, income taxes, property taxes, insurance agent, utilities, school tuition, memberships, etc.), I’m paying these parties to provide a supposed near term benefit. But I don’t have anything to show for it later. The money is simply consumed.
Especially in discretionary areas, when I have fun, go out to eat, go on vacation, blow money, etc, I’m paying others ahead of myself. Yes, I’m gleaning a temporary benefit or pleasure for the exchange of that payment, but I’m not paying myself. Instead I’m paying another.
This is much easier to understand this concept when we’re making debt payments of any kind. Then it’s very clear we’re paying others first, primarily because the interest portion of the payment makes it more manifest than any other form of expense.
So whether it’s paying bills, discretionary spending, or servicing debt, it’s all essentially the same–paying someone else.
When we pay ourselves, it will look something like this:
- a savings contribution to an Emergency Fund,
- a permanent reduction of debt principal (above and beyond normal payments–aka “debt snowballing”),
- a permanent reduction of a recurring expense, making
- a contribution to an investment account, 401k, IRA, etc.
Let’s ask ourselves this thought provoking question: Do we want to be really good at paying others (short term focused) or really good at paying ourselves (long term focused)?
I marvel at those who have a strong income today but still complain they have no money “left” to gain traction. Do you see the mindset? They pay others before themselves.
The key to mastering cash flow and building wealth is to reverse this mindset.
First, before listing ANY expense in your budget, set the boundaries within your available cash flow for your own “minimum” amount to pay yourself. Ask yourself, “What minimum percentage of my income is going to be a ‘sacred portion’ to pay myself and successfully build my financial house within a specified time frame?”
That’s the millionaire mindset that will forever change your financial destiny and will garner financial independence.
The boundaries you set will impact your consumption. Sure, there will be sense of sacrifice and temporary pain to get this started. Yet even within these boundaries, we somehow manage to stay on target AND “have fun.”
A practical way to pay yourself is to automatically withdraw the payment from your payroll check or from your checking account. When we pay ourselves first, there may be the obvious reduction or absence of short term benefit or pleasure. But when you begin to see your savings grow and your debt diminish, this leaves a long-term result.
StoreHouse Financial coaches are ready to help you develop your millionaire mindset. Contact us today.