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21 Jun 2012

Pay yourself First

Pay yourself First
Yes, we've heard the phrase over and over again, "pay yourself first". I have lived by this phrase, then I detoured from it and got back to it several times. For me at least, this is the only way. To make me feel better about "sacrificing" that first sum of my cash, I try to get the relatively safe investing tools like my Nedbank JustInvest account. In my previous post I compared this account with the Money Market accounts in South Africa, if you are interested. This serves as my emergency fund (EF). When you are a small property investor like me, you need an emergency fund account. Actually, when you are a home owner, you need that more than you probably think.

In the past, when I was new in the job market and even newer in property investing, buying every book I can get my hands on with some kind of education in real estate investing, my saving strategy was very simple. All I wanted was to pay off my apartment. I sacrificed more than half of my salary for that and it helped. The way I did this was to get my salary, transfer part of the salary that I wanted to save into my home loan account on the very payday. Off course it has to be on the same day because the interest is charged daily. I just had to save that R50. And then I waited a few days and called my my bank to get a statement because I couldn't link this home loan account to my internet banking. I was almost obsessed with the statement and it helped. I saw how quick the debt was dying and that gave me some sort of adrenaline drive. Even though I've always loved a nice pair of shoes and a handbag, they just had to be on sale to deserve my money. I would see that R500 reducing my debt further. I paid myself first and then whatever that was left, paid me some more. Unfortunately, there was rarely cash left.

Fast forward, I paid up my flat in just less than 4 years. Yipeeeee!!! I remember the last few months seeing a balance below R20,000 and being overjoyed. The feeling of victory that I am soon an owner of a paid up property kept me wanting to pay more and more. Fast forwarding to a few years ago, a few properties paid up, more shoes, more bags, a better car, a bigger house, a family, woolies food, health shops, spa treatments, need I say more. Living a little is an understatement. I lived a lot. I stopped living by the very principle that took me where I was....pay yourself first. I paid me last or almost never. What helped was that I always had multiple homeloan accounts to pay, which served as my  only way of paying myself. I even think thats the reason I always had a homeloan that I resisted to pay up. This is until the hubby convinced me to pay up our second homeloan last year. What a sigh of relief I had after that. I then went back to my old ways of staying with my debt until last month. I decided to pay off my only homeloan, which will take some doing. Its a sizeable amount and needs hard work in the savings front.I feel I am back in the adrenaline drive days and its exciting.

I am now back to paying myself first through my EF and paying off my homeloan. I consider paying off my homeloan some sort of a safe investing tool. I know it is not fool proof but it could be safer than investing in index funds and even safer than buying individual shares. Don't get me wrong, I buy shares knowing that its a higher risk form of investment, I try to read and listen to any sound stock investing advice. But I am a typical beginner, still harnessing books, blogs and online resources on basics of stock market investing. I have a feeling that I'm done with property investing though. I am looking at investing in REITs (Real Estate Investment Trust) and retail bonds. All I can  say is, don't take my word for it. I may be buying a townhouse soon. I am so unreliable.

Off course, if you have debt, paying it will be a form of you paying yourself first. Keep at it and celebrate with every R1000 that goes down. Its very rewarding being debt free.

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