You’ve probably heard the financial advice before, that you need to “Pay yourself first,”. Experts consider this single step to be the most important building block for a solid financial future. Let’s consider the real meaning of this seemingly simple piece of advice.
The phrase refers to the practice of saving a portion of your income before you pay any of your bills. Ideally, get the money out of your paycheck before it hits your checking account. It will be a lot easier to resist taking money out of savings than it is to rationalize spending money that’s within easy reach.
The wrong way to save is to pay your bills first and save what’s left over. In reality, money that’s available to be spent generally gets spent. If you have $1,000 in your checking account and your monthly bills are $900, chances are that month’s bills will creep up to right around $1,000. If your intention is to spend only $900 per month, have the $100 savings direct-deposited into your savings account so your spending will come in right at $900. Then, if you come in at $850 that month, roll that money over into the next month since you’ll likely spend $950 to average it out. This way you’re not ever tempted to take money out of savings. Your lifestyle will adjust to the money on hand.
Using the following steps will help you pay yourself first:
1. Set up your automatic savings
You really have two options available to you: either have the money taken out of your paycheck or have your checking account set up for an automatic transfer to savings.
● If your employer offers direct deposit, you can have that portions of that deposit made into multiple accounts by filling out a simple form.
● You can also set up your checking account to auto-pay a set amount on a specific date every month. If you get paid every other Friday, you can make that the day of the transfer. Either method accomplishes the same goal.
2. The challenges and the solutions
Most people end up feeling like they simply don’t make enough money to save anything. This is rarely true because the amount you can save boils down to what you spend. Your spending is entirely up to you.
● Another solution is to start by saving just 1% of your income each month. You won’t miss 1% of your paycheck. The next month save 2%. Keep increasing the amount a bit at a time until you can get it up to at least 10%. If you can get to 15% or more you’ll be doing great!
● Whenever you pay off a debt, add that money to your savings each month. You weren’t spending it on new things anyways, so keep it up. You’ll now be making those payments to yourself.
Paying yourself first is one of the smartest things you can do for your financial well-being. The key is to get the money out of your hands as soon as possible. The best way is if you never even see the money in your checking account. By saving automatically, your retirement will be most assured! Don’t delay, get started today.