The Most Powerful Rule in Personal Finance

Still personal finance’s most important learning.

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“Pay Yourself First” remains the most important advice in personal finance. The undefeated champion. You know, the original “The Wealthy Barber” helped to popularize that expression, but I have to admit that even I don’t think about that commandment’s power enough. It really is quite magical. And, no, that is not too strong a word.

Mo, how many people over the years have written to us to say that “Pay Yourself First” has changed their lives? Thousands. Like literally thousands of people. And again, that’s just those who reached out to us. Think of all the people who had their life changed by that and didn’t. You know, we had an example recently that really captured this “magical power” perfectly. Stick with me,

it’s very short, but also very illuminating. Gimme 50 seconds. A couple let us know that for two long years, they have been trying to get rid of their credit-card debt. We see it so often. They attempted budgeting, of course. They made out “promise cards” and posted them on the bathroom mirror. One of them even developed a very comprehensive spreadsheet with forecasted spending down to the dollar.

None of it was effective. The balance stubbornly stayed at about $6,000. Now I asked the obvious question: “Are you sure you’re not doing a good job of steadily paying it down, but also simultaneously bring it right back up by spending throughout the course of the month? That’s what’s causing the balance to stay more or less unchanged.”

They had a good answer. “No. We put the cards away months ago. We haven’t been using them at all. There’s just never any money left at the end to make more than the minimum payment. But after reading “The Wealthy Barber” back in November, we made a change” they said. “As soon as I got my pay, we sent $500 directly to the credit-card company, PLUS the minimum payment.

Never looked back. Amazingly, it hasn’t even seemed to limit the life we’re leading. No differences noticed whatsoever, and the debt will be gone, finally gone by the fall. What did you say in the book? Spend first. Save the rest. Bad. Save first. Spend the rest. Good.” Exactly. Grade-three-like sentence structure.

God, it does sound like me. Pay yourself first. It’s trite, boring, and off heard. Yes to all those criticisms. But it’s powerful. Magical. Crucial. Yes to those, too.