My top financial tip? Pay yourself first!

Financial blogger Ricardo explains the importance of investing in yourself first and why arranging a private pension is a wise move


5 minute read


Around eight weeks ago, I increased my monthly savings amount. All I had to do was click a few buttons and, just like that, I’m putting aside a few extra euros each month. Easy!

It’s amazing how such a quick, simple task can have such a huge psychological impact in terms of how I feel, my buying habits and how motivated I am.

In this article, I explain how I invest my money, why I’ve been paying myself first for months, the ins and outs of this approach and how it has transformed my relationship with money. To find out more about me, take a look at my financial blog.

Increasing my monthly savings amount whenever I can

As is no doubt familiar to other self-employed people, my income fluctuates from month to month. And once I’ve deducted all my expenses, I have a different amount left over each time.

Having said that, I can still identify trends that enable me to make projections about my future earnings. Whenever I feel that I can afford to keep regularly putting aside a certain additional sum of money, I increase my monthly savings amount.

This puts me under more pressure by compelling me to make sure that I always have this amount left over. I then feel motivated to work more efficiently and to be more creative in finding other streams of income.

Investing in a global ETF

I invest my monthly savings in a global ETF (exchange-traded fund). This is a fund that tracks the performance of a specific index, such as the DAX or the FTSE All-World.

This approach enables me to acquire a fractional amount of thousands of companies from around the world each month. These investments make up a significant chunk of my private pension.

The state pension is not enough

As most people are already aware, the state pension is not enough, the pension gap is widening and the state pension age is uncertain. This climate makes private pensions all the more vital. And they are especially important for the self-employed, who need to be even more proactive in making their own retirement arrangements.

The state pension is only paid out to people who contribute to the statutory pension insurance scheme. In Germany, most self-employed people do not fall into this category so will not be entitled to state pension payments when they retire. They are therefore highly advised to take steps to arrange their own private pension as soon as possible.

Why I pay myself first

I always put my savings plan into action at the start of the month. By paying into my pension on the first day of the month, I don’t run the risk of spending the money earmarked for this purpose on other things throughout the month.

As most of us have surely experienced, it’s all too easy to spend money like water. By investing in myself first (through my pension), I minimise the chance of mindlessly spending too much money and not having enough left at the end of the month to make provisions for my future.

Another benefit of paying myself first is that it requires me to set a strict budget for all my other outgoings. For me this entails budgeting sensibly and learning to manage my money better so that I can pay all my bills on time.

Question your outgoings and reflect on your spending habits

By paying yourself first, you’ll be forced to scrutinise your outgoings. Do you really need a new pair of shoes or are the ten pairs you have on your shoe rack already enough? Do you have to have the latest iPhone or does your current mobile already do the job nicely?

In saying all this, I don’t mean you should scrimp and save every last cent and reduce your quality of life just so you can save a few more euros.

Instead, the aim of the game is to spend money more mindfully. This is not only good for your wallet, but can also help you to lead a more sustainable and conscious lifestyle.

What you can do to save for your retirement

1. Create a budget planner

The first step towards making provisions for your future is to become fully aware of your incomings and outgoings. You can only identify any room for improvement by gaining a clear picture of where your money is going.

A budget planner is a fantastic tool for maintaining an overview of your finances. You can record your expenditure in the traditional way with pen and paper or choose from a number of apps to help you keep track of everything digitally.

2. Take an active approach

The next step is to take an active approach towards saving for your retirement. This may sound dull at first, but you will soon realise that it is incredibly comforting to work out how much money you have left at the end of the month and to then use this to give yourself a financially secure future.

In Germany, you could invest your money in the Riester pension, the Rürup pension, insurance products, bank products or stock exchange products. In fact, there are so many private pension options to choose from that it may be worth consulting an expert.

3. Explore what makes sense for your situation

Private pensions are such personal products that it is impossible to make a reliable recommendation to anyone without being familiar with their situation. To give you an idea of some of the choices available, here’s a brief insight into how I’m preparing for my retirement.

My private pension comprises two main components. Firstly, I save money into a globally invested ETF, which covers both developed and newly industrialised countries so that I can benefit from global economic development.

Secondly, I purchase small flats as capital investments. Most of my money is currently invested in these flats, which I rent out in order to generate a stable, long-term source of income. Managing this investment is, however, time-consuming and there are sometimes huge risks involved.

With these two components, I feel confident that I am setting myself up for a secure retirement. And this is what I would recommend for you, too. It’s important to seek inspiration from others, but at the end of the day, only you can decide what’s right for you. What works for other people won’t necessarily be the right fit for you and vice versa. You need to come to the right decision for you.

The best time to start was yesterday, but the next best time is now

This may sound like a cliché, but it actually hits the nail on the head. If you haven’t started making private pension provisions yet, today is the best day to change all that.

If you start to take action now, I can guarantee that in a few years you will look back and thank your past self. Good luck!

To find out more about Ricardo and the world of finance, visit his financial blog.

Author: Getsafe