Stop us if you’ve heard this before, “an important part of any budget is saving for emergencies and for your financial goals?” How boring does that sound? We’ve authored this post and we almost fell asleep writing it…
Sorry we’re back! Everybody knows that in order to secure your financial future you need to save for emergencies and for your goals. These are like the 3rd and 4th iterations in the 10 financial commandments (didn’t know those existed did you?), right after:
- Make a budget!
- Stick to that budget!
If you need a visual reminder of these rules, we’ve included an epic picture of Charlton Heston from the 10 commandments to remind you:
Thou shalt have an emergency fund and save for your goals!
Between financial experts and bloggers there are thousands of voices calling us to the self sacrifice of the budget. Haven’t we heard enough of the self sacrifice talk? Discipline and self sacrifice are only going to get you so far, eventually they get really old and really unpleasant. Sometimes we need these to be re-framed in a way that energizes us and excites us. Thus we offer a new way to think about saving, paying yourself first.
How Does it Work?
Paying yourself first means that immediately when you get paid you determine the maximum amount you can save. Rather than waiting until the end of the month and saving what’s left over, you save immediately when you get paid. You move that money first thing so that you can’t access it, thus paying yourself first.
When you choose to pay yourself first, you are making the conscious choice to enjoy the good life, to have an awesome financial future. You are choosing to secure that future before you do anything else. You pay yourself before you pay your bills, before you buy groceries, and before you buy that thing you’ve been wanting but don’t really need. Here’s why this is a good idea:
- Paying yourself first requires you to get used to saving as much money as possible. When you immediately put aside a good chunk of you paycheck first thing every month you build in an expectation of saving. It also helps you adjust to not having that money, even if it means you need to find a little extra money each month.
- If you don’t do this first thing when you get paid, something else will ALWAYS come up. A vacation, a new TV, clothes etc. If you wait until the end of the month to see what is left in your account, guess what, there won’t be much left. We tend to spend what we have access to because we are bad at saying no to ourselves.
- When you pay yourself first you fill up your emergency coffers. Suddenly every “emergency” that comes your way is no longer that big of a deal.
Putting it Into Practice
There are several tools you can utilize to help you enact this concept. Including:
- Splitting your paycheck into separate accounts. Designating a certain percentage of your pay to go directly into your savings account when you get paid.
- Setting up an automatic transfer right after you get paid. Doing so will allow you have funds moved into your savings account from each paycheck.
- Use an automated savings app like Digit, Dobot, or Qapital. These can help you pay yourself first by making sure that you are always save money even if you forget to do it yourself.
We invite you to adopt a similar strategy with your budget, pay yourself first and hang onto your money.
What has been your experience paying yourself first? Does the thought of doing this re-energize you to stick to our budget?