There’s a pretty popular concept in personal finance – it’s often referred to as “pay yourself first” and it’s nothing new, but it is something incredibly valuable to put into practice. The idea is, when you get paid, take some of the money you make first, and invest it (or put it in a savings account, but that’s boring IMO), then take what’s left and divide it up as you normally would. Here’s the official definition according to Investopedia:
“Pay yourself first” is a phrase popular in personal finance and retirement-planning literature that means automatically routing your specified savings contribution from each paycheck at the time it is received. Because the savings contributions are automatically routed from each paycheck to your investment account, you are paying yourself first. In other words, paying yourself before you begin paying your monthly living expenses and making discretionary purchases. (Source – Investopedia)
I’ve been a fan of the “pay yourself first” methodology for a long time, my Dad first introduced it to me when I was in High School and its stuck with me ever since. When I first started doing it, I was taking about 10% of what I made and putting it into stocks, the percentage increased to over 20% and by the time I was in my late twenties I moved from stocks to domain names.
That’s when I realized, within my domain sales themselves I needed to pay myself first once again. The idea here is, every time you sell a domain name, take a chunk of the profit (note that I said profit) and put it into another domain, or two, or five depending on what kind of profit you made.
10% is a pretty safe place to start, over time you can increase it. This means that when a name leaves your portfolio, another name (or more) comes in, on top of your principal plus a nice profit.
I’ve often heard domain investors talk about selling a name and immediately putting that money into a depreciating asset like a car, watch, etc. While I don’t think there’s really anything wrong with this, I do think that at least when you’re starting out it’s a good idea to re-invest some part of your profits and pay yourself first.
Even with small sales, let’s say a domain you hand registered and sold for $1,500. If you take 10% of that, head over to Go Daddy Auctions and buy a domain for $150, you’re enjoying a really nice profit, and adding an even better name to your portfolio that you could sell for $2,500+ locking in an even bigger profit.
Of course the complexity with domain sales always comes down to timeline. Some domains sell in a few months, others could take a few years, others ten years. There’s no way to know if the domains you are replacing the name you sold with will sell as quickly, (or ever depending on your price expectations), so buy carefully when you are re-investing your profits.
I don’t think I’m saying anything too groundbreaking here but it’s something I don’t think I’ve covered much on my blog and since we’re heading into a new year, it’s never a bad time to start a new, positive habit.
What do you think? Is paying yourself first a good idea when it comes to domains? I want to hear from you, comment and let your voice be heard!