Key Reasons Why You Must Pay Yourself First

How to make yourself a priority

Conventional financial wisdom says that we should always pay ourselves first. This concept can be hard for most people to follow. Our first inclination is to pay our bills first then save if we have anything left. When we follow this way of thinking we will usually find that there is nothing left. After our monthly bills there are usually additional items that we forgot about or we find that we have “extra” money so we splurge on something fun. If you find that you are living paycheck to paycheck, like many people, then there is never any extra once all of the necessities are paid.

Paying yourself first is sound financial advice, on every budget, and serves several functions. It makes you the priority in your financial life. Saving for an emergency and/or for your future provides peace of mind because it gives you a safety net. When you have money set aside you are less likely to put emergency expenses on a credit card, borrow from someone else, or get a payday loan. It also reduces stress because knowing that you are able to handle life’s surprises puts your mind at ease.

Change your mindset

Paying yourself first is really less about the amount you save and more about the mindset shift that takes place when you make yourself a priority. It is very easy, especially for women, to put everyone else’s needs above your own. This selflessness can also extend to our monthly bills. Your bills will be waiting for you weather you have a savings account or not. In the event of a flat tire or if the washing machine needs repair you will find a way to get the money you need to pay for it and it usually involves lots of stress and creative financing. Why not preemptively plan for that emergency and save yourself the sleepless nights and frantic calls to family and friends and start saving for your future peace of mind.  (See my previous post about money mindsets https://libertyfinancialllc.com/2019/06/08/what-is-your-money-mindset/)

Save for emergencies

Create an emergency fund. Ideally you will want to have a minimum of $1000 in an emergency fund to start. Once you have reached a thousand dollars keep going until you have 1 month of expenses saved. Then continue saving until you have 3-6 months of expenses saved. If you have a hard time keeping $100 in your savings account I’m sure you are totally dismissing my suggestion of saving $1000. Instead of thinking about the total amount, which can be unfathomable, create smaller savings benchmarks.

Most people can find $25 or $50 dollars per paycheck to spare but may have a hard time culling $100 from out of their budget. Break your larger savings goal down into increments that are less intimidating. This will make it more likely to follow through with it. Open a free online bank account, like Capital One 360 , and setup automatic payroll deposits or automatic transfers from your bank account every pay period. The money will come off the top before you begin paying bills. Saving in an online account, separate from your regular account,  keeps you from dipping into that money in the event that your “emergency” is a sale at Target. I recommend getting a debit card for the account so that you have access to the funds in a true emergency but don’t carry it with you.

Challenges keep you motivated

Staying motivated to save can be a challenging. Thinking about all of the things that $25 per paycheck could do for you in the present will keep you from beginning. To stay motivated I suggest following a savings challenge.  A savings challenge is a sort of game you play with yourself to track your savings. You can do this on your own with charts or you can do this with a friend for added motivation. Savings challenges are effective because you are able to see your progress immediately and checking off your progress keeps you engage.

A challenge that I have been doing for the past several years is the $5 challenge. The way this challenge works is that you save every five dollar that bill you receive.  Even if you don’t carry much cash you will be amazed at how quickly it adds up. I keep my savings in a special jar out of sight to avoid temptation.  I only take the jar out to add more money.  Only counting the money when I am ready to deposit keeps me from spending it as well.  It is a fun way to save and can be used to start or add to your emergency fund in addition to your regularly scheduled recurring deposits.

Accountability is another way to keep you motivated. If you have a friend who will keep you encouraged then share your savings journey with them. There are also online communities that you can join to share your journey and get motivation.  You will benefit from putting yourself first financially because you deserve the peace of mind saving for yourself will bring. Seeing that first hundred dollars in your account is motivating but watching it grow can be addictive.

Life happens when you are busy making plans

It seems like right when you get close to a savings goal life happens and you need to dip into your emergency fund. This happened to me recently when I had an unexpected car repair. Having the money in my emergency fund was awesome but was also annoyed that I had to use them. It seems that I have become quite addicted to watching my savings grow on my tracking sheets. I have a pretty aggressive savings goal and this expense pushed that goal back by about 90 days.  Being able to avoid adding to my debt by using money from my emergency fund is well worth the delay. Instead of paying the credit card company interest for this expense I can pay myself back.  Financial peace of mind is  priceless. No matter where you are in your financial journey you will benefit from paying yourself first.

 

 

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