Rich Dad Poor Dad: What the Rich Teach Their Kids About MoneyThat the Poor and Middle Class Do Not!

5. Pay yourself first: the power of self-discipline
If you cannot get control of yourself, do not try to get rich. It makes no
sense to invest, make money, and blow it. It is the lack of self-discipline
that causes most lottery winners to go broke soon after winning millions. It
is the lack of self-discipline that causes people who get a raise to
immediately go out and buy a new car or take a cruise.
It is difficult to say which of the 10 steps is the most important. But of
all the steps, this step is probably the most difficult to master if it is not
already a part of your makeup. I would venture to say that personal self-

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discipline is the number-one delineating factor between the rich, the poor,
and the middle class.
Simply put, people who have low self-esteem and low tolerance for
financial pressure can never be rich. As I have said, a lesson learned from
my rich dad was that the world will push you around. The world pushes
people around, not because other people are bullies, but because the
individual lacks internal control and discipline. People who lack internal
fortitude often become victims of those who have self-discipline.
In the entrepreneur classes I teach, I constantly remind people to not
focus on their product, service, or widget, but to focus on developing
management skills. The three most important management skills necessary
to start your own business are management of:
1. Cash flow
2. People
3. Personal time
I would say the skills to manage these three apply to anything, not just
entrepreneurs. The three matter in the way you live your life as an
individual, or as part of a family, a business, a charitable organization, a
city, or a nation.
Each of these skills is enhanced by the mastery of self-discipline. I do
not take the saying, “Pay yourself first,” lightly.
The statement, “Pay yourself first,” comes from George Clason’s book,
The Richest Man in Babylon. Millions of copies have been sold. But while
millions of people freely repeat that powerful statement, few follow the
advice. As I said, financial literacy allows one to read numbers, and
numbers tell the story. By looking at a person’s income statement and
balance sheet, I can readily see if people who spout the words, “Pay
yourself first,” actually practice what they preach.
A picture is worth a thousand words. So let’s review the financial
statements of people who pay themselves first against someone who
doesn’t.

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Study the diagrams and see if you can pick up some distinctions. Again,
it has to do with understanding cash flow, which tells the story. Most people
look at the numbers and miss the story.
Do you see it? The diagram reflects the actions of individuals who
choose to pay themselves first. Each month, they allocate money to their
asset column before they pay their monthly expenses. Although millions of
people have read Clason’s book and understand the words, “Pay yourself
first,” in reality they pay themselves last.
Now I can hear the howls from those of you who sincerely believe in
paying your bills first. And I can hear all the responsible people who pay
their bills on time. I am not saying be irresponsible and not pay your bills.
All I am saying is do what the book says, which is: Pay yourself first. And
the previous diagram is the correct accounting picture of that action.

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If you can truly begin to understand the power of cash flow, you will
soon realize what is wrong with the previous diagram, or why 90 percent of
people work hard all their lives and need government support like Social
Security when they are no longer able to work.
Kim and I have had many bookkeepers, accountants, and bankers who
have had a major problem with this way of looking at, “Pay yourself first.”
The reason is that these financial professionals actually do what the masses
do: They pay themselves last.
There have been times in my life when, for whatever reason, cash flow
was far less than my bills. I still paid myself first. My accountant and
bookkeeper screamed in panic, “They’re going to come after you. The IRS
is going to put you in jail.” “You’re going to ruin your credit rating.”
“They’ll cut off the electricity.” I still paid myself first.
“Why?” you ask. Because that’s what the story, The Richest Man In
Babylon, was all about: the power of self-discipline and the power of

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internal fortitude. As my rich dad taught me the first month I worked for
him, most people allow the world to push them around. A bill collector calls
and you “pay or else.” A sales clerk says, “Oh, just put it on your charge
card.” Your real estate agent tells you, “Go ahead. The government allows
you a tax deduction on your home.” That is what the book is really about—
having the guts to go against the tide and get rich. You may not be weak,
but when it comes to money, many people get wimpy.
I am not saying be irresponsible. The reason I don’t have high credit-
card debt, and doodad debt, is because I pay myself first. The reason I
minimize my income is because I don’t want to pay it to the government.
That is why my income comes from my asset column, through a Nevada
corporation. If I work for money, the government takes it.
Although I pay my bills last, I am financially astute enough to not get
into a tough financial situation. I don’t like consumer debt. I actually have
liabilities that are higher than 99 percent of the population, but I don’t pay
for them. Other people pay for my liabilities. They’re called tenants. So rule
number one in paying yourself first is: Don’t get into consumer debt in the
first place. Although I pay my bills last, I set it up to have only small
unimportant bills that are due.
When I occasionally come up short, I still pay myself first. I let the
creditors and even the government scream. I like it when they get tough.
Why? Because those guys do me a favor. They inspire me to go out and
create more money. So I pay myself first, invest the money, and let the
creditors yell. I generally pay them right away anyway. Kim and I have
excellent credit. We just don’t cave in to pressure and spend our savings or
liquidate stocks to pay for consumer debt. That is not too financially
intelligent.