Frequently Asked Questions
What does ‘pay yourself first’ mean?
Paying yourself first means saving or investing a set portion of your income as soon as you’re paid, before covering discretionary spending. The idea is associated with The Richest Man in Babylon by George S. Clason, which advises that a part of all you earn is yours to keep, at least one tenth. Automatic transfers to savings or retirement accounts on payday make the habit easier to keep.
Did Thomas Jefferson really say to never spend your money before you have it?
Yes, in substance. According to Monticello, ‘Never spend your money before you have it’ was one of the rules in Jefferson’s list of canons of conduct, which he wrote out for his granddaughter around 1811 and sent in another version in 1825. Many other money quotes attributed to Jefferson are not genuine, so it’s worth checking sources before repeating them.
What is the difference between income and wealth?
Income is the money you earn over a period, such as a salary or business profits. Wealth, or net worth, is what you own minus what you owe at a given point in time. A high income doesn’t guarantee wealth, because spending can absorb it all, which is why The Millionaire Next Door argues that wealth is what you accumulate, not what you spend.
What does ‘know what you own, and know why you own it’ mean for investors?
This advice, associated with longtime Fidelity Magellan Fund manager Peter Lynch, means understanding each investment you hold and having a clear reason for holding it. If you can’t explain what a company or fund does and how it fits your goals, you’re more likely to panic in a downturn or hold on for the wrong reasons. Reviewing your holdings regularly, sometimes with a financial advisor, helps keep your portfolio aligned with your plans.
About the author
Contributing Writer, Wealthtender
Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine.
Karen provides copy editing and proofreading services, as well as content creation services, at her website KarenBanes.com.