Pay yourself FIRST!
Have you ever heard of the phrase, “pay yourself first”? The concept of “paying yourself first” is considered a rule of thumb by many financial planners. The basic idea is pretty simple. As soon as you get paid, put some money into your savings account first. Before you pay your bills or buy groceries, set aside a portion of your income to save. Thinking of personal savings as the first bill you should pay each month can help you build emergency funds, vacation savings, savings for a house, savings for a vehicle, savings for your kids college, savings for retirement… you see where I’m going with this right? By starting with a small amount like $50-100 each payday and using automatic payroll deductions, after a few months, you probably won’t even notice the withdrawal. Over time you may decide to increase the amount you put into savings. There are plenty of benefits when choosing to “pay yourself first” and prioritizing savings.
First, there’s the obvious one about building a huge savings balance. Regular steady contributions are an excellent way to build a large nest egg. If you have savings for unexpected items you aren’t stressed about how to get the money when something unexpected happens. When you want to save or purchase something and you know in advance paying yourself first is an ideal concept to have in place. Maybe you want to purchase new furniture or plan for school shopping or purchase new tires or starting a new business venture without borrowing money. By paying yourself first, you’re almost guaranteed to make sure that money is there when you need it. There’s no scrambling at the last minute. You can choose based on the need what type of savings account you put your money into… your normal savings, money market savings, a certificate of deposit (CD), IRA, and other investments options. We will discuss the types of savings on another post another day.
Then there is the psychological aspect. Building savings gives us motivation to keep building. There are also plenty of mental benefits to seeing your savings balance grow and increase overtime. When you prioritize savings, you’re telling yourself that your future is the most important thing to you, not those shoes or that new game or that fancy jewelry. We discussed in a previous blog post about money adding value. While money may not buy happiness or add value in certain aspects of your life, it can provide a piece of mind and sense of security. People with fat emergency funds tend to have fewer emergencies than those with lower or zero balances. Finally, paying yourself first encourages good financial management habits. By moving savings to the front of your list of priorities you will make better choices. When unexpected things come up they will still be unexpected but you will have that cushion. If you choose to automatically deduct a portion of your income, you’re able to set the money aside before you rationalize ways to spend it.
The bottom line is “paying yourself first” is the golden rule of financial management. By using this technique, you can and will benefit over the long run. Test the waters a little bit… take baby steps… put aside even $10-20 to start off to get you going. Don’t find an excuse not to save a little money first. You’ll work hard for your money. Why not pay yourself first before paying everyone else? Try it and see…
Thanks for your time my Kings & Queens!
Until next time…follow me on Instagram and Facebook for more financial tips: finacialacts