You may have come across the concept of “paying yourself first”. But if you’re unfamiliar with this, it’s essentially putting aside money into your savings account before you pay your bills, groceries or any other financial commitments.
If you instil in your mind that the first “bill” you have to pay is an amount into your savings pot, this will go a long way towards building your wealth. By paying yourself first you are making your financial goals and aspirations your main priority.
To get going on this, set aside a certain portion of your income (at least 10%) the day that you get paid before you spend any money. If you’re in your 30s, 40s or even older and haven’t got much in the way of savings you’ll probably have to save more than a mere 10% as you’ll need to play catch-up. If you’re uncertain, speak to an accredited financial adviser who can tell you how much you need to save to ensure you meet your goals.
Ideally you should create a savings vehicle first (for example a unit trust) and create a debit order that will automatically move your desired savings allocation to your savings vehicle. If you automate the process, you’re unlikely to forget about it and it will feel like less of a chore.
If this still feels like a weird way of doing things, here’s a list of reasons why you should use this money saving tactic:
1. It focuses you on your priorities, in other words your future financial security
Will your local restaurant or coffee house ensure that you live comfortably in retirement? No, of course not. That’s why you have to rely on yourself and put money aside before you start spending. Creating wealth doesn’t happen overnight. But if you’re consistent about it and make it priority it will soon grow into a respectable pot.
2. It means that what’s left is yours!
It’s really difficult to take that last bit of money you have left at the end of the month and put it into savings. That’s what makes savings so hard. It’s a grudge thing to do. But if you “set it and forget it”, and is the first thing you get out of the way you won’t need to think about it for the rest of the month. And, best of all, the money that’s left over after all the bills have been paid is for you to do with what you like!
3. It creates a healthy reward cycle
You’ve worked hard for your money and you should be able to keep some for yourself. It’s easy to get sucked into the rat race and just work and pay the bills (and repeat). But if begin on a savings journey, stick to the plan and watch your money grow you will get that sense of pride and achievement, especially once you reach your goals. You don’t want to feel down about paying your last monthly pittance into your savings account. By paying yourself first you’re doing it when you feel empowered (when you’ve been paid) and there’s therefore less pressure.
The art of setting (and forgetting) your savings
Paying yourself may be an alien concept at first because for so long you may have only been saving what’s left over at the end of the month. But it is a good money habit to adopt because often people find that by the time they’ve paid their bills and had some fun entertaining themselves they don’t have any money left at the end of the month to put away into savings.
By paying yourself first before you pay your bills and have fun, you’re ensuring that this won’t be a problem. And if you come up against problems such as having to replace a fridge or using money to tide you over after a retrenchment you would have a good sized nest egg at your disposal to rely upon.