I Used To Be Terrible At Saving Money

Then I stopped listening to the experts

There’s an old adage called “pay yourself first” that retirement experts have advocated for decades. It’s the idea that when you get paid, before you pay bills or spend any money, you take a certain amount of cash and invest it in your retirement account.

For many of us, this strategy doesn’t work.

In fact, it can have disastrous consequences. I’m living proof.

I would do the financial equivalent of the walk of shame.

I was “paying myself first” for years, but I was also constantly robbing Peter to pay Paul.

For example, let’s say I received $3,000 in a month. Listening to the experts, I’d skim the recommended 10 or 20 percent off the top and direct it to my investment account. Then I would go about the process of paying my bills over the next two weeks to 30 days.

More often than not, I’d face a shortfall. I’d come up against not having enough money to meet my monthly obligations, even when I was careful about spending.

Invariably, I would do the financial equivalent of the walk of shame.

I would have to, tail between my legs, transfer the money I had just put into my investment account back to my checking account to cover my bills.

There’s so much that’s not okay about this.

First, the only way most of us will see consistent results investing is if we buy and hold dividend-paying stocks and reinvest those dividends to buy more stock alongside incremental buys. That’s called compounding. It’s basic math that creates wealth.

It’s the only way to go for the long-term investor. But it requires time.

You have to invest your money in a diversified portfolio and let it sit. If you’re continuously selling stock, you’ll never build momentum.

If you need the money and have to sell on a market downturn you risk taking out less money than you originally put in. It’s a recipe for failure.

While it sounds logical, pay yourself first can turn into a nightmare.

If you repeatedly find yourself in the precarious position of not being able to make ends meet, you’re likely to make the decision to stop investing all together.

That’s what I did.

And it makes perfect psychological sense.

Why would you continue to put yourself in a pinch by diverting your income into an investment you know, more often than not, you’ll be unable to commit to?

You’re just inviting stress.

Financial media pundits can’t seem to understand why so many people — particularly Generation X and millennials — struggle to save for retirement.

Maybe it’s because the retirement industry continues to push the same bad advice. But it’s not just bad advice, it’s unrealistic.

One recent study said millennials will need to save nearly half of their income to retire comfortably by age 65.

If that’s true (I would argue it’s not, but we’ll save that debate for another day), we need to change the way we’re advising people to save and invest.

I changed how I do it.

Instead of paying myself first, I work backwards.

I have previously explained exactly how I do this. It’s a simple concept.

When you get paid, take care of all of your living expenses first. Then, invest the rest.

Taking this approach will stop you from self-sabotaging by having to dip into your investment account. It also produces other positive long-term effects.

At the top of the list, you’ll have at least some money invested. Starting small beats starting and stopping any day.

And you’ll be more likely to keep your cash invested. Watching this money start to work on your behalf can get you excited about investing. It does for me.

That’s when you do the work of pulling back on your spending. Without sacrificing a good life, you strive for an ultra low cost of living because you want to have as much money as possible left over after paying your bills to invest. You’ll quickly have a better sense of not only how much you spend, but how much you actually need to spend every month.

That’s when investing becomes fun. When you don’t stress. When you allow yourself to live. When you work backwards, bucking conventional wisdom that, for many of us, simply doesn’t work.

This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.