Paying Yourself First
Have you ever been in a situation where you needed extra cash or had unforeseen expenses pop up on you and not been able to take care of them due to living paycheck to paycheck, then this idea will definitely benefit you.
The basic concept is to automatically have a small percentage of your paycheck or income routed to a savings account of some type so that it is separate from your main billing or expense account. This way, you have already paid yourself before you use your main account or cash to pay for bills or discretionary purchases.
When dealing with debt this can raise your confidence level as well as provide that all important cushion in case something does occur which was not planned for.
Pay yourself first so that you can relax later.
Your saving of a certain amount by default every paycheck or regular interval will have multiple advantages over not doing so at all. Even if you have to use some of the money for emergencies, the knowledge that you have this cushion will allow you to deal with your other issues, monetary and otherwise, with less stress overall.
Consistently making these payments to yourself over the long term will allow you to create a fund that can be relied on in the future for your retirement and beyond. Let’s explore how to pay yourself first.
How to Pay Yourself First
Putting this idea into practice is fairly simple and straightforward. To take full advantage, earmark a certain amount from whatever income source you have to be automatically routed into a personal, separate savings account. This could be an account that only allows withdrawals at certain time intervals or if a penalty is levied, like a 401k or another retirement account.
This further removes any potential desire to tap into savings for unnecessary purchases, entertainment, or items that could be done without. It will be far less tempting to spend cash that you shouldn’t spend if you know that using it incurs a penalty beyond just spending it.
Are there other ways to “pay yourself first”?
Yes there are. Investing in items or interest bearing accounts that attain value over time is an excellent way to do this. This is not something you want to be gambling with, so making sure that your investment will create a consistent return and never go down is essential to doing it right.
Investing in a classic car or another antique item that is known to only be increasing in value can help you achieve your goal of paying yourself first while at the same time enjoying your new purchase.
Why do most people avoid this method?
It has been confirmed through many studies worldwide that most people do not think they make enough money to save without having to sacrifice their current lifestyle or being forced into a situation where they can’t pay the bills. Most people have never heard of the concept and when presented with it will try to come up with many reasons why.
Once they find out how to pay yourself first, and that this can be done without breaking the bank, their savings and spending habits change. Making the first step to pay yourself first can increase your confidence along with your monetary savings.
All you have to do is put aside a small amount every week or pay period to the separate account. This concept has been around for as long as people have been hiding money in jars and boxes in the ground for later emergencies.
There are consistent advantages to “Pay Yourself First”
Being in debt or living paycheck to paycheck can be extremely stressful. Trying to maintain a lifestyle that is beyond your means or barely within it can cause more stress than changing.
Cutting back or changing your current expenses to allow for some money to be saved is easy. Instead of eating at this restaurant or buying food at that grocery store, you can shop around for a place that serves the same of what you are used to but at a cheaper price. Then you take the extra, no matter how small, and deposit it to your savings.
You now have money you wouldn’t have had before and you still have the things you need.
Use this concept to change your outlook and ability to cope with the unexpected. At the very least, barring any huge medical expenses or other emergencies, your retirement will constantly become easier as you plan for the future and set up a manageable plan.
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