Are You Paying Yourself First Yet?
What is the first thing you do on that happy day when you get your salary or other income into your account each month?
If the answer is that you pay out everything you need to pay before thinking about your own savings then you could be doing things the wrong way around.
The concept of paying yourself first isn’t something new but it could be exactly what you need to do to get your saving habit on the right track. The basic idea here is that you put money into your savings account or pension fund before spending on anything else.
Why Do It?
A common problem for many people is that they simply don’t have enough savings, while some don’t have any at all. If you keep on waiting for the perfect moment to start saving it might never arrive. After all, there is always one expense or another to deal with each month. Of course, having no savings takes away any flexibility from your finances and leaves you at the mercy of accidents, disasters and illnesses. By paying yourself first you make sure that you commit to saving some cash before doing anything else, which is the one way of making sure that you do actually save some money that month.
How to Do It
Once you decide to do this then carrying it out is the easy part. The easiest way to do this is to set up a regular automatic payment to your savings account or pension fund for every month. This can be done easily and many banks even let you do it online these days. If you always get paid on exactly the same day every month then you can make the payment for the day after this. If your salary day sometimes varies you will probably want to play it safe and make sure that the regular transfer only leaves your account on a date when you are sure there will be money there. Just don’t leave it too late or you could have found something else to spend the money on before the date comes along and the money heads off to its new home.
This is an easy way of building up some savings without having to do anything once the system is up and running. You can just let the transfers leave your account each month and then forget about them. You should quickly get used to budgeting for the money without taking this money into account, as you will no longer see it as available cash you can spend. You might even forget about your savings for a while and be pleasantly surprised when you see how much is in there. In either case, the savings will build up slowly but surely over time, which is the most sensible way of building up a savings account.
Points to Remember
This is a very simple idea and there isn’t a lot to worry about. Perhaps the most important point of all is that you need to set the amount of your regular savings transfers perfectly. If you try to put away more than you could afford then it could be a struggle to get through the rest of the month. On the other hand, if you don’t save as much as you could then you will be missing out on the full benefits of paying yourself first. Spend some time working out how much you can afford to save and then give it a try. It could turn out to be the best financial move you make this year.
What do you think about the idea of paying yourself first?