What does it mean to pay yourself first? This is a very popular phrase in the personal finance world, and although you could use it in other areas such as personal development, or setting goals, it does factor around the whole concept of having a certain amount of your paycheck be automatically deposited from every paycheck into a special account which is to be saved and not touched.
This whole phrase centers around the fact that you work hard for your money and you deserve a portion of that money to be saved, before paying out the bills. Here’s why….
Why should you pay yourself first:
- Regular contributions will have a long term affect on your personal goals
- It definitely will help you save money
- It will give you more control over your money situation
- It will build your confidence
- It will build a long term future nest egg
Like the majority of individuals who have an IRA already setup, you can easily do the same by instructing your employer payroll department to withdraw the same amount from each paycheck and to have it put directly into your account.
It can also be done on your own by tucking away a certain amount once you get your pay and before you start paying out bills or spending any money.
This can actually be split among a regular savings account, an investment account, an IRA, a trust account or any type of retirement account.
Saving money and paying yourself first allows you to:
- Build up an emergency fund
- Build up a retirement account
- Allows your money to grow for large purchases
- Grows your personal income for whatever your goals may be
The Biggest Issue:
- People will always go and pay specific bills first or spend the money on unnecessary items and therefore end up with nothing saved for themselves
- People have a hard time saving money
- The hardest part of how to pay yourself first, is getting started, having the ability to keep contributing each payday and especially not spending the money on unnecessary items.
Pay yourself first means, setting aside a certain amount of money from your money source, before you start paying out the bills.
Lets face it there will always be bills to pay, so it might be easier if you consider the issue of paying yourself first, as being a top priority bill that must be paid each and every paycheck.
How to start paying yourself first:
Get set up with your employer to deduct an amount out of your paycheck. If they don’t offer such service then do it on your own and open a savings account with your local bank
I know it is extremely hard and for some it might seem impossible, but start out trying to save at least $10 to $50 dollars a week put it in a savings account for your emergency fund and don’t touch it no matter what bill is screaming at you. After you feel comfortable with that, then starting building up the amount each week.
Most people will agree that they feel like they don’t make enough to put money aside and they need to pay bills and buy necessities first. Definitely the thought pattern needs to change from, I can’t do that, to, I will have this amount of money put aside for myself.
Ways to get that extra money to pay yourself first:
Get your bills in order. Put yourself and your family on a budget. You just might surprise yourself to see where your money is being spent each month.
You can find ways to cut down on your recurring monthly bills. Take for instance your energy bills. With modern technology you can get timers to control lights, appliances, heat and air setting, turn off technology when not in use. Unplug chargers and appliances that are not used on a regular basis. Turn off that light when you leave the room.
Re-adjust the setting on the hot water tank to a lower setting will save tons of energy
Do you have more house and more “toys” then you really need? Learn to reduce and recycle
See if you can refinance any outstanding loan that you presently have
Cut down on the spending. Get creative in finding ways to save money. Do you need that $50 hair appointment twice a month?
Give up shopping for six months to a year. Do you truly know the amount you spend on clothing, household accessories, electronics, do you really need that latest smartphone?
Change those daily habits. Do you stop and get a latte every single morning? I know I drive by our local Starbucks a couple of times a day and they are always super busy. I think that $4 latte every morning could be put into that weekly savings that you need to build. (let’s see, just one latte at a cost of $4.00 each work day, multiplied by four weeks in a month..hmmm, to me that is $80 a month going into my savings. I do make a good cup of Starbucks coffee every morning at home,and a bag of coffee will last me two weeks or more.
Use your free time wisely, learn new things, learn all you can about your finances, figure out ways to bring in extra income into your monthly budget. How about eliminating debt, reducing credit card usage, planning your future, planning your retirement.
Learn to live below your needs. Get your spending under control.
Learn to save for major appliances or special occasions. Yes we had to do this before we were introduced to credit cards.
A woman recently told me that she went to a cash advance place to borrow money to throw her child a “big bash” birthday party at a local restaurant, she expected about twenty kids to be coming, plus some parents. Not only does she have to pay over $100 dollars in fees to the cash advance place, she has to repay it in two weeks. (can we say predatory lender?)
Here are my thoughts about this whole situation: she knows she is giving her child a party, why did she not pay herself first and save throughout the year for this occasion? My second thought was, could she not scale down the whole party?
Yes, it is called budget, budget budget…can you do it?
Get a good understanding of what things costs. Not only the items you buy at the local stores, but also importantly understand such things as bank fees, investment fees, the interest being charged against your credit cards each month, what the true cost of being in debt is costing you.
What does it mean to pay yourself first? Yes it does mean to put money away before paying other things, but I also see it as that, you have to take care of yourself first.
Be in control of your money and understanding your spending and savings patterns.
So I would like to know what this saying means to you and how do you pay yourself first?
Drop me a comment and let me know.
Never Stop Learning…Angela