Pay yourself first
The expression ‘Pay Yourself First’ is one you may have heard before – and for good
reason. It’s one of the best strategies for managing your money. Fortunately, it’s
also extremely simple.
If you stick to them, the principles behind paying yourself first will help you
get control of your finances. They’ll also help you save – sometimes more than you
may have thought possible.
How does it work?
Paying yourself first simply means that whenever you get paid, you take some money
out for your own savings before you pay any other bills like rent, power, groceries,
etc. The best way to do it is to set up an automatic payment so that the money comes
out every time you get paid. If you never even see it, you are less likely to spend
it.
Most people put the money in a high interest savings account, but you could also
put it into a retirement savings scheme, or an investment like a managed fund, or
you could split it amongst different types of savings. It depends on what you’re
saving for and what your goals are. But wherever you put it, the principle is the
same – pay yourself first before you pay anyone else, like the power company or
your landlord.
Why does it work?
Many people try to save what’s left over after their bills and their discretionary
spending (e.g. on entertainment). The trouble is, it’s just too easy to spend money
– and often there’s very little or nothing left over. We all know that feeling.
Paying yourself first makes your goals a priority. It helps you avoid blowing your
money on things that aren’t really that important in the long run. It also gets
you into good financial habits. Saving ‘what’s left over’ is really leaving saving
to chance. Paying yourself first gives you a plan and puts you in control.
Making it work
Be realistic in what you decide to ‘pay yourself’. If you try to save too much you
may find yourself having to dip into your savings for essential expenses. Start
out small, establish the habit and gradually increase your payment if you can.
Having a goal helps you stick to the plan. It’s easier to avoid the temptation of
dipping into your savings if you can focus on what you’re saving for.
The earlier you start, the better – so set up an automatic payment now and start
paying yourself first.
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