Want to get your debt under control as painlessly as possible? We talk about a scheme that allows you to do just that.
Okay so do YOU pay yourself? Your employer certainly does, and if that person is you because you are self employed, then you are in charge of your own pay. But this isn’t the kind of payment we’re talking about.
What we’re talking about here is the act of rewarding yourself every time you get paid. And by “reward” we mean tucking some money away for the future. Or reducing your debt slowly but surely. After all, how many months do you find yourself promising to put some cash away, and then getting to the end of the month and discovering you’ve got none left to apply to your credit card balance or to pass to your top discount brokerage?
Why You Should Pay Yourself First
It’s easy to do isn’t it? So if you want to stop operating that way and pay yourself first instead, here are some good reasons for doing just that.
1. It becomes much easier to pay down existing debt. When things are handled automatically, there’s less chance of you worrying over how to make your minimum payments or any loan payments you need to make each month. Your money is immediately earmarked for specific bills and payments and what you don’t see, won’t occupy you.
2. It is an easier way to build savings. If you always consider your savings goals as a last priority, then you’ll never reach them. It’s human nature to enjoy spending and to ignore saving — at least for most of us. If you’ve got twenty dollars left, there’s a strong tendency to spend twenty dollars. If you’ve got forty dollars left, you’ll spend that too. So why not save twenty to start with and then spend the rest?
3. You can treat your savings with the same importance as your bills. Bills are important –- we all know we’ll get penalized in more ways than one if we don’t pay them. If you have lots of your bills set up to be paid automatically, set up another payment each month to go straight to your best savings account. You’ll find that it is the easiest way to save without even realizing it half the time.
4. You won’t forget to do it later in the month. We’re a forgetful bunch at times, us humans, and even if we know we’ll get something good out of performing an action, we often still forget to do it. Life tends to get in the way, doesn’t it? So when you set up those regular payments each time at the beginning of each month, you’ll be paying yourself first even if you forget you’re doing it.
5. You will learn to manage your money in a more responsible way. In a way, it doesn’t matter how much or how little you are saving. The fact is that you’re doing it –- and this can lead to other good money saving and management habits as well.
So there you have it –- four good reasons why you should be paying yourself each month just as you are paying your bills as well. The key here is to make sure you work out your sums before getting started. You may want to set up a budget with a financial tool like You Need A Budget to help you work out your plan (you can read more about this tool in our review of You Need A Budget here). This way you will know exactly how much you can afford to pay yourself. You can always change your savings amounts but make sure you stay consistent.
Consider the figure you’ll have left afterwards as surplus income. The chances are that you can learn to live off that remainder quite happily –- especially if you start cutting down in certain areas as well. This might even lead to being able to pay yourself more in the future.
One final tip –- if you ever get a pay raise or some other kind of windfall, pay it all to yourself unless there is a very good reason for not doing so. You’ll always be able to spend it, but if you can manage without having to spend it right now, then why not save the money and use it for something more important in the future?
Now that you’ve read about the joys of saving, let’s look at a few more posts from around the blogosphere. Here were a few that grabbed my attention (especially the first article):