You may not know this but, a basic concept of personal finance is pay yourself first. It’s all about building your savings and healthy money management. Let us explain.
Many of us face a familiar situation from time to time, and that is the promise to yourself or your loved one that you will increase your retirement contributions with your next paycheck. But life takes over, and you find that there’s never enough to put into savings after all the bills get paid. There goes another promise, and so the cycle continues.
First, let’s get the confusion out of the way. Many people consider the phrase, pay yourself first, confusing because it assumes that you’re self-employed when most people get paid by their boss.
Remember, I said to pay yourself first means to save money and learn to manage money. It means you should pay that retirement account first, including your personal account.
It also means you should purchase life insurance and even long-term disability insurance. Do you know that emergency fund we all hear about on the radio? It needs help, too.
Speaking of money management, pay off your debts, and don’t add more. An affordable mortgage or other necessary expense to improve your life and your loved ones is normal and expected.
Sometimes you may have to trick yourself into paying yourself first. When the time comes to pay your bills, put your retirement accounts on the top of the heap and pay them first. Pay your personal accounts now, too.
When you start treating these expenses like you would any other typical bill, you won’t set them aside for later because that’s not what you do with bills. They get paid when they’re due.
Don’t fall into the trap everyone else does. Many people say there isn’t enough money at the end of the month to commit to retirement. Train yourself into thinking that saving is more important than any other bill, and it gets paid every month without fail. As I said, those bills get paid first, every month.
It’s a change in the way you think about saving and paying bills. For most people, a nice nest egg is something to be desired but never a reality unless you change the way you think. Adding to your savings is just as important as the mortgage, light bill, or phone bill. Try not paying one of those for one month, and you know what happens.
Experts agree to pay yourself first is a commitment. After it becomes an unbreakable habit, people get very resourceful and find extra money where it’s needed. More work, fewer bills; It’s a simple formula that works.