Ever notice how, if you’re like most people, your bank account has this nasty habit of ending each and every month at zero? How are you supposed to save any money when you need all of it each month?

Time for a human psychology hack.

See here’s the thing: us humans often have a way of using up ALL of a given resource we have access to. We’ll eat all the food in the house. We’ll wait right until the deadline to deliver a project. And we’ll spend every last penny in our bank account each month.

But it doesn’t need to work like that.

Enter the 10% rule and the concept of paying yourself first. What are they, you ask? Patience, my friend 🙂 first, a quick nod to where they came from!

The Wealthy Barber

The Wealthy Barber is one of the most well-known books on personal finance in existence. It’s written by David Chilton, and it became as successful as it is because, unlike most personal finance books, reading it isn’t anywhere near as painful as slamming your head under a toilet seat over and over.

The lessons are taught through a fictional story about a guy and his family/friends that hang out at a local Barber shop and get lessons from said Barber on handing their finances. It may sound weird, but it’s actually really well-told.

ANYWAY, moving on.

Two of the lessons the barber teaches his customers are the two I mentioned above: the 10% rule and paying yourself first. If you haven’t read the book, then finish reading this post and immediately go buy it. Worth every penny in my opinion, and I’ll give you a link at the end of this post.

So how do these things work?

Paying Yourself First

When you get paid, the first thing you probably do is set aside money you need to pay your bills, amirite? After all, if the phone company shuts off your internet, we all know all hell will break loose.

So what if you treated your savings like you do your other bills? What if it came out of your paycheque automatically, before you even had a chance to spend it on a single double-shot whip latte?

That’s the idea behind paying yourself first. Go set up an RRSP or TFSA at your favourite financial institution (don’t know what those are? Read this). If you have a contribution plan through your work where the company matches a portion of what you put in, be sure to start there.

If you don’t have that luxury, then talk to an advisor about how to set up automatic withdrawals so that every time you get paid, a little goes into your savings. How much should go? It depends, but a good rule of thumb is about 10% of your pay before taxes.

Hey look at that, it lines up perfectly with the 10% rule!

The 10% Rule

Like I said, the general rule of thumb is that about 10% of your pay should go toward savings. Arrange it so that it comes right off your paycheque and into your savings account, whatever form that takes. Let’s look at an example of how that can add up.

Say you make $40,000 per year and get paid bi-weekly. That’s 26 paycheques a year of $1,538 before taxes and deductions. If you’re saving 10% of that each pay period, you’re saving around $154 every two weeks. That’s over $4000 per year, before interest!! Wowzers.

Making it Work

I can hear it now: “But Jason, I need every single penny each month just to get by…” Do you? Do you really? Here’s my challenge to you: try it out for two months. Pay yourself first for two months, and see how you feel. If I were a gambling man, I’d bet that you won’t feel the pinch nearly as much as you think.

Just like we expand our spending to use up all the money in our account each month, we can also adapt to doing the same thing to a slightly smaller amount as well. You’d be amazed at how quickly you adjust.

Wrapping it Up

We all want to retire one day, but the reality is that nobody will do what it takes to get there for you; you’ve got to do it yourself. And you can. Pay yourself first, regularly, and you will have taken a big step toward making that dream a reality!

Oh yeah, and I promised you a link to The Wealthy Barber, if you wanted to grab a copy for yourself 🙂

I hate to sound like a broken record, but remember, I’m not a financial advisor. These are my opinions, not formal financial advice. I’m just a guy who is passionate about personal finance and becoming financially free!