Blogs & Comment

Budgeting vs. Paying Yourself First

Despite making an average $500,000 a year (in todays prices), the great novelist and playwright F. Scott Fitzgerald, never was able to put money aside. He and his wife thought the solution was to budget, to prepare a complete record of what they had spent running the household. But somehow, at the end of the month, they were always over budget. There was continual leakage, leaving Fitzgerald and Zelda bewildered: Somehow a mysterious third of our income had vanished into thin air, wrote Fitzgerald.
A good financial planner orbook on personal finances could have set them straight. Roy Miller, the wealthy barber in David Chiltons classic book, initially had the same problem. There was nothing left at the end of the month . I had tried budgeting and it hadnt worked, he tells David, Tom and Cathy.
Then old Mr. White told the barber: Pay yourself first. That is, have 10% taken off your paycheck and put into a bank account or investment fund before you get your hands on it. Budgeting may work for a business because the owner wants to keep costs down but budgeting for a person is hard because wants tend to evolve into needs.
You wont notice it, the wealthy barber says of the automatic deduction: I never did miss that money. My lifestyle didnt change at all.