The Coin Chronicles, Chapter 4: „Pay Yourself First“

Photo by Johny vino on Unsplash

“I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you.” — George S. Clason in “The Richest Man In Babylon”

This is probably the single most important rule in your money management that will be the absolute foundation of a life with an abundance of money. But what’s the meaning of „pay yourself first“ anyway? Read on and find out how it can help you live a richer life.


Today’s rule is the logical outcome when we’ve understood Chapters 1, 2 and 3. Once we understand how our brain deals with money in abundance it gets clear why we have to limit this abundance in the first place. If you’re new here, you might want to read „The Coin Chronicles, Introduction“  and the first three chapters first.

As stated several times before, Parkinson’s law says that the more money we own, the more money we spend.

Why is that?

Well. Simple. Because we’ve got it.

Our brains are very bad when it comes to delayed gratification. After all, our body is still designed to work as it hast 20.000 years ago.

In these past millennials, our society has advanced much quicker than our bodies had time to react. That’s for example why men still get scared when they’re about to talk to a woman in a bar. After all, 20.000 years ago men didn’t know if a woman was already taken. Try hitting on the wrong one and her guy comes along, smacks in your head with a stick and that was it for you. It’s literally a fear of death that men fear when they’re about to hit on a girl in a bar. But I digress.

Our brains are actually not that much further advanced than the brain of a monkey living in the jungle. Give a monkey the option to have two bananas now or 5 tomorrow and it will always choose the two. It doesn’t understand delayed gratification.

We do, but we’re not very much better in handling it.

After all, why are we having such a hard time when we have to decide if we get our asses off the couch and into the gym?

It’s the same when it comes to money.

As I wrote before, buying stuff sends out hormones in our brains that make us happy. Buying gives us immediate gratification. Wealth, on the other hand, is delayed. That’s why so many people have problems choosing wisely on what to spend money on.

But there’s a trick that we can use that takes away the temptation. And it’s to pay ourselves first.

What does it mean?

It means the moment your paycheck hits your account and the money flows in, you take it out from under your greedy fingers and send it where you can’t spend it anymore.

I suggest using two bank accounts. In nowadays world, it’s easy to open a free bank account that you can use for these purposes. Things like Revolut, for example, come to mind, but there are other free options as well.

Make sure that you have one bank account for spending and one for saving.

I actually use three. Depending on your bank account, you might be able to set up a system with a single account as well but the essential trick is to separate the money you have ready to spend each month from the rest of your money.

The moment my income hits my first bank account I send a fixed part of straight off to my savings account. As a rule of thumb, this part should be no less than 10%. The more the better. I usually sent off 50%, when I still worked my job as an anesthetist.

This was money I never had.

The next thing that happens automatically is that all my recurring costs of the month (rent, phone bill, etc) are being paid or moved to a different bank account with direct debit set up. That’s another 30%. Remember how we calculated our fixed and averaged fluctuating-fixed costs in Chapter 2? That’s that.

This left me with 20% of my paycheck. Everything else was gone and money I never had. I didn’t need to think about if I could spend it or not. It’s gone.

These 20% are to be spent on whatever I wish. I go out with it, buy food, etc.

If on the day before the next paycheck hits my account I’ve got something left over (which is usually 5–10% of my income) then I send it off to another account where I save for the bigger expenses, like holidays and all that stuff.

As a result, I think twice about spending my money, because after all… I don’t have 100% of my income to spend each month but only 20%. By limiting myself and my ability to spend it, I’m not that tempted. If I can’t afford something, I can’t afford it and have to wait for the next month to be able to buy it.

If all my money was on the same account, yes, I could afford it. Therefore the temptation was way higher. See how this works in our favor now?

If you limit your ability to be tempted because you can’t afford it, then you don’t need to waste your willpower on it. Decision fatigue is the keyword here.

And by the way, it feels so much better to buy something off the spending account when you know you can afford it even though you’ve already saved so much!

If you manage 50% or even more that’s fantastic. But as little as 10% saved each month will lead to 1.2x times your month’s salary saved each year. Congratulations, keep this up for 30years and you can retire 3 years earlier.

That is… if we are not factoring in compounding interest over the years. Which is where the real fun starts.


Thanks for reading, have a wonderful day.
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