I recently had the pleasure of talking to a self-made millionaire mom (who preferred to remain anonymous) I met at a personal finance blogger’s convention.
What’s so special about her, you ask?
She became a millionaire in her 30s because of one simple personal finance rule.
The rule: pay yourself first.
Now, I know what you’re thinking. “That sounds too good to be true,” or “I bet she was rolling in dough from the start.”
But hold on because her journey is more relatable than you think.
She didn’t start with a six-figure salary or a hefty inheritance.
She began her career in a high-cost-of-living area (southern California), working at a non-profit making just over $30,000 a year. But she stuck to her golden rule, and as her income increased, it became easier.
The Golden Rule: Pay Yourself First
So, what does “pay yourself first” mean? It’s simple yet revolutionary. Before you pay your bills or spend a dime, you set aside a portion of your income for yourself into your savings and investments. Think of it as paying your future self for all the hard work you’re doing now.
Where the Money Goes: Investing, Not Spending
Now, let’s dive deeper into the core principle of “paying yourself first.” It’s not just about setting money aside; it’s about where that money goes. Our millionaire mom emphasized this: “The key isn’t just to save, but to invest.”
Investing vs. Spending
When you pay yourself first, the idea is to allocate the money towards building wealth, not just stashing it away for a rainy day or spending it on impulse buys or consumer goods.
Let’s break this down.
Creating a Safety Net
The first part of paying yourself first means building a safety net.
This isn’t about hoarding money under your mattress but creating a buffer for unforeseen circumstances. When our millionaire mom first started, a portion of her savings went into an emergency fund, separate from her investment portfolio.
“Emergencies happen, but if you’re living without an emergency fund, you may put emergency expenses on a credit card and pay high interest for months or even years. When you pay yourself first and have a solid emergency fund, your emergencies cost less in the long run (because you don’t pay interest on them), and you’re less stressed.”
An emergency fund also helps avoid costly penalties.
“There are many tax and financial benefits to investing in retirement accounts like 401Ks and Roth IRAs, but you must be willing to set that money aside for many years. Dipping into these accounts earlier than you are allowed can have steep costs. Having a well-funded emergency account can give you the confidence and patience to leave retirement accounts alone and weather any financial storms while you allow your investments to grow.”
Invest Wisely
Once an emergency fund is established, it’s important to start investing. This could be in stocks, bonds, or real estate. Her goal was to put her money in places where it has the potential to grow over time, not just sit idly.
“Most people invest a small amount in their retirement account. If they’re smart, they’ll at least invest the minimum amount to get their employer match (if they have one). However, most people don’t do much beyond that. If you want to decrease the time it’ll take you to become a millionaire, you need to increase the amount you set aside to invest every month.”
Our millionaire mom shared that this means maxing out retirement accounts ($23,000 for 401Ks in 2024), Roth IRAs ($7,000 max in 2024), and even investing additional funds with after-tax dollars.
When asked what percentage of her income she invested, she shared, “I invest nearly 50% of my income every month.”
Learn more:
How Much Does a Person Need to Retire: The 4% Rule Gives an Easy Answer
Understanding Compounding Returns
Saving and investing nearly 50% of your income may feel out of reach, but our millionaire mom didn’t always invest that much. However, when she learned about the power of compounding interest and the power of time, she knew saving more while she was young would allow her to relax.
“Investing harnesses the power of compounding returns. For example, if you invest $1,000 and it grows by 7% annually in 10 years without adding another dime, you’ll have about $2,000. Now, imagine doing this with regular contributions!”
Luckily, we don’t have to imagine; a simple future value calculator shows us that $1,000 invested monthly and gaining 7% yearly would equal $175,094 after 10 years. Investing consistently over time does pay off.
While this all sounds great, it feels out of reach for the average person. But here was her advice:
Avoiding Impulse Purchases and Use a Budget
“Most people hear the word “budget” and cringe. A budget makes them feel restricted and “poor.” I don’t see it that way. My budget is simply a tool that holds me accountable and helps me spend my money intentionally to align with my highest values and goals. It reminds me to pay myself first, and then I can do whatever I want with what is left over.”
Learn more:
7 Simple Steps to the Budgeting Process: A Must Read
Now, unless this millionaire mom lived like a peasant or invested in risky stocks, it’d still be hard to become a millionaire on a $30,000-a-year salary, especially if you have two kids! So I asked her what else she did besides paying herself first to become a millionaire in her 30s.
To this, she said that she worked on increasing her income. Here’s how:
How to Increase Your Income
Here are the strategies our millionaire mom used to increase her income.
1. Consider a Side Hustle
In the gig economy era, side hustles are more feasible than ever. Whether it’s freelance writing, selling digital products online, or driving for a ride-share service, the options are endless.
2. Negotiate Your Salary
Many of us shy away from this, but negotiating your salary can make a massive difference. Our millionaire mom made it a point to negotiate her salary at every performance review. She advises doing your research, understanding your worth, and not being afraid to ask for what you deserve. She also highlighted the importance of making your intentions known. “Don’t expect management to advocate for you if you aren’t advocating for yourself,” she said. “If you want a promotion, ask what it would take to get it, what skills you need to develop, and what projects you can take a leadership role on to grow into a higher position. You may be afraid but ask anyway. The worst they can say is no.”
3. Apply for a New Job Every Year
This might sound drastic, but here’s what our millionaire mom had to say: applying for a new job every year doesn’t mean you have to switch jobs every year. It’s about understanding your market value and keeping your options open. Each job application, interview, and offer can be a learning experience and a chance to potentially increase your salary. If you want to stay at your current company, you can use your new offer as leverage.
Practical Tips for Paying Yourself First from Our Millionaire Mom
Now, let’s get into the nitty-gritty of how to effectively pay yourself first:
- Start Small: If you’re making $30,000 a year, saving 10% might seem impossible. Start with 1% or 2% and gradually increase it.
- Automate Your Savings: Set up an automatic transfer to your savings or investing account right when your paycheck hits. If you don’t see it, you won’t miss it.
- Budget Wisely: Keep track of your expenses. Use budgeting apps like YNAB or good old spreadsheets. Know where every dollar is going.
- Cut Unnecessary Expenses: Do you need that premium cable package? Is there a subscription you’re paying for but not using? Cutting down on small expenses can add up. Also, try to minimize your taxes legally.
- Invest Wisely: Our millionaire mom of two didn’t just save; she invested. Whether it’s stocks, bonds, or real estate, find an investment strategy that works for you.
- Stay Consistent: Consistency is key. Make paying yourself a habit, not an afterthought.
The Power of Compound Interest
A crucial part of her strategy was understanding the power of compound interest. By investing early and consistently, she allowed her money to grow exponentially over time. It’s like a snowball rolling down a hill, getting bigger and bigger.
The Journey Matters
Finally, it’s important to remember that this isn’t just about the destination (becoming a millionaire) but also the journey. Our mom learned invaluable skills, discovered new passions, and gained financial independence along the way.
The Bottom Line
So, there you have it. An inspiring true story of how a mom of two used the simple rule of paying herself first to become a millionaire in her 30s. Remember, it’s not about how much you make today but how you manage what you make. Foundational habits built today can transform your life as your income increases. Start small, stay consistent, and watch your financial health transform.
Additional Resources
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Learn more:
7 Surprising Simple Steps to Achieve Financial Freedom Now
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P.S. The information provided on this blog is for educational and entertainment purposes only. It should not be construed as financial advice. The content is not intended to be a substitute for professional financial advice. You should always consult with a qualified financial advisor or other professional before making any financial decisions. The author and publisher of this blog make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained.
