The average family today spends most of their time earning money so they can decide who, how and when to pay all the people they owe, while making sure they have everything they need. Then, the money is gone and the process of earning money and worrying start all over again. The current economic conditions haven’t made it any easier for people to pay themselves first. And worse, lots of people have no real understanding of what it means to pay yourself first. Fewer seem to want to take the time necessary to read the 1926 classic, The Richest Man in Babylon or do other things that would ensure they were monetarily satisfied.
Essentially, paying yourself first, means that when you get paid – before you pay anything else whether it be groceries, fuel, bills or go shopping for shoes – you pay yourself in the ways of a high yield savings account. If you don’t want to put your money into a bank account, then get an empty wine bottle and start paying yourself a set amount every pay day. It doesn’t have to be a lot and it certainly shouldn’t be so much that it makes the rest of your days an evil form of suffering. But anywhere from $10 to $100 per payday, saved for YOU, in any manner is vital to your financial wellbeing.
Listen, the reasons to pay yourself first are endless. However, the most important reason to set the precedent of doing this is that begin developing a mindset to savings. You should be able to put something in your personal piggy bank each and every time you earn money. By setting the mindset and putting yourself at the highest realm of the priority list – you send a very direct and conscious message to yourself and the Universe. Many people pay themselves first by taking themselves out to dinner, upgrading their computer software, buying themselves new shoes, or enjoying a vacation. This is NOT what it means to pay yourself first.
Allocate the money you set aside as something that you cannot touch. Sure, you can set a goal for the money. Most people nowadays would do better putting it into an account that doesn’t have easy access. If you can access it by visiting ATM machine, chances are it won’t yield much money because you will be ever tempted to pull it out when something comes up. Instead, use an online bank that doesn’t have a debit card that would force you to transfer the money, which could take days. You will find that you come up with other means to get your bills paid when you aren’t able to act on impulse.
Financial experts agree that most people are committed to saving money in this order. They take care of the bills first. Then they have some fun, buy groceries and other necessities, and will save what is leftover. This mindset will actually work against your efforts to save. If you save first and pay and play later – you become the priority. Additionally, getting used to doing this early in life, will support the value you have for money as well set a routine. If you currently do things in the reverse order, you will find that it is hard to change the habit.
Think of your savings money as a buffer. If you have big plans for the future, you can use that money for it. Or, you can simply and easily be building a nest egg, little by little that will help you out of an emergency should it arise. It will help you learn to feel more comfortable financially and as it builds up, give you a very visual and physical picture of what it means and how it feels to save. Sure, it’s not an over night plan to achieve big financial success – but in a years time, you would be surprised how it adds up.
So, how do you do it? With so many bills to pay and barely enough money to get through till next payday, how do you start paying yourself first? It really is easy. The first idea is to open up a ROTH IRA account. Sure, the market is unstable now, but if you are still rather young then you have plenty of time to allow it rebound. You also could start investing as much as possible into your 401K or retirement account. If you get a raise, even minimal, invest it into one of these accounts and you will never feel that the money is not there. You don’t have to be necessarily stock or investment savvy to do this – just try to make safe investments. Then forget about them for a while. If you drive yourself crazy checking them every day, you will lose the paying yourself mindset and feel frustrated and uneasy.
Another idea is to find very high yield savings accounts that as mentioned above, don’t have ATM access. Choose an online bank like ING or any of the other ones and look for incentives that allow you to earn money just by opening an account. Once you do, set up automatic transfers from your regular account. It is suggested to transfer an amount like $50, which isn’t enough to send you to the poor house, but is also a comfortable way to save $200 per month.
In today’s economy, financial experts seem to suggest that just about everyone can save 1% of their income. This may not seem like a lot to begin with, but it is a painless and easy way to start paying yourself first. Eventually, it will give you the courage to bump up the percent to 2 or 3%. They also suggest that once you pay off a debt, for which you have had a monthly payment – take that money and start saving it. After all, you have become used to NOT having it each month. Although it may seem easier to have it, and have an extra $200 per month to play with – the truth is you won’t miss it if you just roll it into a savings account.
There are of course other ways to save and pay yourself first as well. Try doing something like refusing to spend a $5 bill. Instead, put those $5 bills in your wine bottle. You would be surprised how 50 $5 bills can add up. You can do the same things with your change. This type of money is easily forgotten, and once it hits your wallet, it is as good as spent. The point of paying yourself first is just as must mental as it is physical. You have to begin believing that you are worthy of the payment and that it will be worthwhile in the long run.