Personal finance is one of those areas where there are many fundamental topics. Just like when you begin working out, you understand that you need to train hard and eat well. You know that these are the basics. With money management we all know that we need to make money, spend less than we earn, and save. In between all of this there are many tactics and tricks to make things easier.
As we continue in the Saving Tons of Money Series, we shift our focus to paying yourself first. Before we get into the meat of the article, let’s understand why do you need to pay yourself first?
You can’t screw it up.
Once your pay yourself first, you really can’t screw up the process. The process gets all messed up when you delay your plan to save your money. Delaying to save money will almost always cause you to not save this money. No matter how good your intentions might be at the moment. You want to create a system that you can’t screw up if you realistically want to start saving your money.
Forces you to save money.
You’re forced to save your money when you set it aside and lock it up in your savings account of choice. If you save your money and let it be, you’ll be pleasantly surprised when you see how quickly your savings are building up.
Our wants start to kick in.
Anytime I see any sort of advertisement or I walk into a mall I start to think of things that I need to buy. I know that I don’t need this stuff. The thing is that everyone is susceptible to marketing. This is why we need to save our money and put it away so that we don’t start thinking of crap that we need to buy. At that rate you’ll never save any money. You’ll constantly find new things that you want. This will bring you further from your money goals.
Okay so you know that you have to pay yourself first. What’s next? What are the best ways to pay yourself first?
Get the money deducted from your paycheck.
This way you’ll never have to even see the money. You can pretend that you got a pay cut or something. The funny thing is that after a few paychecks you’ll get adjusted to your “new income.” All you have to do is go to your payroll department in HR and request that they take the money off your paycheck. At the most you might have to fill out a few forms and decide where you want your money to go. I recommend that you take the simplest option. You don’t want to put off automatic deductions just because you can’t decide where you want to put your money. Don’t let the paradox of choice prevent you from saving your money.
Manually transfer the money over every time you get paid.
This is the ideal strategy for those of you that have an irregular income. Whenever you get paid through your freelance work or your business, you can decide how much money you want to put away. I don’t want to throw out an arbitrary percentage. It all depends on your bills, goals, and of course taxes.
The only caveat here is that you might get lazy if you need to manually transfer your money first. This is why positive reinforcement helps and it makes sense to stay tuned to your favorite personal finance blogs for a reminder of some of the fundamentals.
Do you believe in paying yourself first? Has this strategy worked for you?
Check out the other article in the series:
(photo credit: medmoisellet)