Your paycheck makes everyone rich… except you – when you don’t Pay Yourself First.
Your labor actually is helping make your boss tremendous wealth. He gives you a portion of earnings in exchange for your time and effort. No harm, and you feel it’s a powerful motivator. But what becomes of that paycheck?
It goes right back to people just like your boss.
The owner of your favorite coffee shop gets a piece of your paycheck,
Whoever dreamed up your favorite streaming service gets another piece.
Your landlord gets a huge piece.
Some goes to pay off a Student Loan.
And your high interest credit card provider? They gobble up whatever’s left on your spending plan.
Everyone gets rich on your monthly income while you’re left scrambling to make ends meet. You get another paycheck and the cycle repeats.
So how do you escape this endless cycle to achieve your savings goals?
Before you do anything else, follow the oldest rule of personal finance “pay yourself first”.
“Pay yourself first” means that you should pay your own savings and investment accounts first. You are “paying” your future self by saving for your long-term needs and expenses. For example, paying yourself can include: Buying insurance, including life insurance and long-term disability care, creating an emergency fund (thebalance.com)
You may not immediately see a big benefit in paying yourself first, but if a financial emergency arises, this strategy can help you ahead of your emergency fund into securing your financial goals.
“Ultimately, paying yourself first is about putting yourself first, which helps make sure you’re prepared for whatever’s yet to come”. (wellsfargo.com)
Start treating your personal savings contributions as the most important bill to pay. Here’s the simplest way:
- Decide how much you want to pay yourself from your monthly income and adjust your spending plan budget accordingly.
- Set-up savings options that allow for atuomatic transfers from a checking account to your savings accounts. A good Personal Finance tip on building an efficient savings plan is to schedule your Savings Contributions to your financial institution right after your payday.
- A Financial Planner can help you set up your savings options such as retirement accounts, deposit accounts, emergency savings, investment options, according to your financial situation.
- Your spending plan for paying rent, utility bills, credit card debt, and purchase of groceries should be done after your automatic transfer completes.
- If you follow this personal finance tip you can then use whatever is left for your lifestyle
Remember, the most important person you owe money to is you. Prioritize your financial obligation for yourself and build your savings options to build wealth and achieve financial success.
OTHER SOURCES AND RESOURCES:
Why Pay Yourself First?
If you’re just getting started in the Real World, saving may seem impossible. You have rent, a car payment, groceries, and maybe student loans. Sure, you’d like to save, but there’s just no money left at the end of the month. And that’s the problem: Most people save what’s left over left over after bills and after discretionary spending.
But if you don’t develop the saving habit now, there are always going to be reasons to delay: you need dental work, you want to go to Mexico with your friends, you aren’t making enough to pay your bills. Here are three reasons to start saving now instead of waiting until next year (or the year after):
How to Start Paying Yourself First
It can be daunting to start paying yourself first when you already feel like you struggle to keep up with your bills and other spending. However, if you break down your goals into manageable steps, it will be easier to start saving.
There are a variety of ways to do this.
How Much Should You Be Saving In an Emergency Fund?
Develop a savings habit Even if you’re paying off credit card debt, pay yourself $10 a paycheck. Then, when the debt is gone, you’ll already have the habit in place and can up the amount you save considerably.