Never Retire - Why 'Pay Yourself First' Doesn't Always Work

The best way I've discovered to organize your monthly personal finance

In the most recent installment of the Never Retire newsletter, I started telling the story of the journey—from my teenage years—to embracing the reality that I’ll Never Retire:

I rarely made ends meet. In fact, most months, I ran a deficit, using credit cards to keep things afloat.

At the beginning of what would become a repetitive cycle, I continued to invest regularly.

Looking back, it made absolutely zero sense. Sending money to investments at the same time as racking up credit card balances with interest rates in the teens. Not to mention the occasional cash advance good for 20%-plus interest.

If you’ve ever been in a similar situation, you know rationalization rather than logic prevails.

I was paying myself first.

In 1995. At age 20. I struggled financially. Like many 20-year olds do. Especially those of us who went out on their own at such a young age.

But it wasn’t necessarily the credit spending that did me in.

I ran up credit card debt at that time because I could not make ends meet.

Credit card debt was merely an offshoot issue I created to deal with the core problem.

For goodness sake, I ate most of my meals—in my truck—in the Taco Bell parking lot.

It was my adherence to what I (thought) I knew that did me in.

Core and conventional personal financial and lifestyle norms, thought processes, and strategies.

Upward mobility. I assumed—and was ultimatley correct—that I’d keep making more money. Within a year, $26,500 a year turned into $45,000. Then, $45,000 turned into $50,000. Next, $50,000 turned into $65,000. Before you knew it, I was making between $80,000 and $120,000 for several years. In my twenties.

Lifestyle expansion. However, as I made more money, I spent more money. I kept leveling up to larger apartments in so-called nicer neighborhoods. Instead of keeping my payment-free used truck, I leased a new car. Then, at the end of the lease, I leased another.

This was what you were supposed to do.

At that time, the idea of striving for a low cost of living never crossed my mind. The righteous extreme I try to live by today—finding the floor—definitely didn’t.

I was all-in on the double whammy of traditional retirement:

It doesn’t seem logical to make the primary personal financial strategy on the road to old age one where you take on a relatively massive 30-year loan—and the attendant lifestyle that often goes along with it—at the same time as trying to save $1 million or more in the span of roughly 40 years.

Doesn’t seem logical might be a nice way to put it.

Clearly—based on many of the outcomes we’re observing—there’s tons of risk and uncertainty inherent in devoting your prime years to working to pay off a mortgage and save $1 million so you can quit work altogether at around 65 years of age.

Had I decided to not pursue this traditional path, I would have had tons of surplus cash flow each month. I could have used it to pay off and end my credit card spending. I could have used pots of money—like I do today—to put myself in near- and long-term positions of strength with cold, hard cash rather than striving for elusive dreams of home ownership and traditional retirement simultaneously.

Pay yourself first. Saving or investing money before you pay your bills and spend money on things you want doesn’t work for everybody.

It definitely didn’t work for me.

Not then. Not now.

Here’s the thing—

• It’s easy to feel like a loser when pay yourself first doesn’t go as planned.

• It feels much better to aim for a cash surplus—as early in the month as possible—then allocate that cash strategically.

• Especially if you experience variable income like freelancers often do.

Common scenario—

• You pay yourself first.

• You pay other bills.

• You buy stuff you don’t necessarily need, but shouldn’t feel bad about.

• You make a purchase or two maybe you really didn’t need to make. But you still shouldn’t feel bad.

• It’s, say, the 20th of the month. You’re broke. You’re running a deficit.

• You take that pay yourself first money out of your savings or investment account and use it to make ends meet.

That last bullet point. It’s probably the least talked about thing that regularly happens with people’s money.

Here’s what works for me—a low cost of living coupled with paying yourself last. It’s the best way I’ve discovered to organize your monthly personal finance.

It eliminates the need to budget. It decreases the chances I’ll backtrack and pull money out of savings to pay for everyday life. A truly demoralizing proposition.

It’s the most simple approach to managing money I’ve ever used.

As I described the other day on Medium, sometimes simpler is better. Why this hasn’t become obvious to more people, I don’t know.

All of the above helps you live more evenly across the lifespan—

Never Retire - Work Less, Invest Less, Stress Less