The Art of Paying Yourself First
You deserve more than just the lousy left-overs of your paycheck.
The middle-aged woman waiting beside me at the bank looked nervous. She kept turning in her chair and jiggling her foot and so I asked how her morning was going. I was waiting to meet with an advisor as well.
She looked at me with anxious eyes and blurted,
“I am so nervous. I’m meeting with an advisor as I want to start saving for retirement, but after the bills are paid, there’s nothing left for me.”
I didn’t quite expect her response but I certainly know how stressful money can be. Haven’t we all had some kind of financial stress at some point in our lives? I remember the days when all I could put aside into savings was $10 per pay period.
I said, “We’ve all been there at one time or another. What works for me is using an automatic transfer service to pay myself first.”
She looked a little surprised and doubtful but I told her to ask her financial person about it. But she stayed on my mind all day. It bugged me, as I don’t think she’s the only one who pays herself last.
Are You the Last Person Being Paid Each Month?
I get it. You have lots of payments: mortgage or rent, utilities, food, fuel, credit card debt, insurance, health expenses, childcare, car payments and more. It can make your head spin and keep you up at night.
Most people pay the bills first, then keep some money for entertainment and if there’s anything left over it may get thrown into savings — which is okay if you like staying awake at night worrying about money and wondering if tinned cat food is in your future.
I don’t like staying awake at night from hot flashes or money worries. If you’re serious about simplifying your life, you have to flip your saving money strategy upside down.
What does that look like? It can be summarised in three points.
- Pay yourself first
- Pay your bills second
- Use your leftovers for the fun stuff
Now before you send me a snarky message saying that you can’t do it — just hear me out. I want you to remember this:
No one should care more about your money than you. And you have to realize and care that you need money for your future.
Because sooner or later life hits you with an unexpected bill, diagnosis, or event and you’re going to need that cash. Not to mention you can’t expect the government to pay for your retirement and supply you with all the fancy cheese and wine you adore.
The government doesn’t care. The utility company doesn’t care. The bank doesn’t care. You have to be the one who saves for your future, your dreams and also for an emergency fund account.
It takes time, but it can be done while you still pay your bills as the responsible person you are. And you probably won’t have to cut cheese out of your life either.
So how do you pay yourself first? You should have a goal savings amount for the year. It is based on your income and expenses. How does $2,000 sound?
You can’t wing it when you want to save money. You need a plan or it just won’t happen. You’ll procrastinate. But when you want to save $2,000 next year for an emergency fund/travel/retirement — well — sh*t starts getting serious:
$2,000 divided by 52 weeks = $38.46 per week.
Yes. That may be a shocker and it just flashed into your mind about all of the random crap you’ve bought this week that was more than $38.46. What would it cost you per day? Well, $38.46 divided by 7= $5.49 per day.
Where can you trim $5.49 of spending in your daily life so you could have $2,000 patiently earning compound interest for you in one year?
Another good idea is to create a direct debit system whereby the weekly amount is automatically withdrawn from your bank account.
When your savings are automated, you start saving money more easily since no emotion is involved and your hands stay out of it.
If things are tight — start with 1–5% of your take-home pay. Get it automatically deducted from your account just as if it were a bill. When your income grows, make sure to increase the amount.
Have it automatically transferred to a saving account that you can’t tap from the cash machine or with your debit card in a shoe store. Touching this cash is taboo.
And make sure the money is invested and not just earning a lousy 1% interest.
Most of your savings are hidden in the choices you currently make that use up all of your cash. Did that hurt a little?
It certainly did for me when I recently did an assessment of how much I was spending on Amazon per month. No wonder Jeff Bezos is the richest man in the world. I broke up with Jeff and now he and I only get to meet once every 3 months.
Do you need to break up with Starbucks? Eat out too much? Junk food? Too many magazines? You know the drill. You don’t need to cut all the small indulgences from your life. But look at which ones are truly joyful and which ones are a habit.
Seeing $2,000+ sitting in your savings warms your heart more than a weekly sushi fix.
If times are tight — start small. Even if your financial situation is super tight, you can still save. Even if it is $10 a month. Don’t feel bad about the small amount. It changes your mindset — and you can say to yourself, “I save money every month.”
It is life-changing.
It gets pretty exciting to see you have $100 saved for Christmas money and it is only July. Or that there is money if something blows up on your car or hot water tank. You see your travel account growing slowly…which makes you freakily happy.
You pay your bills on time and you also have money for small indulgences. (Or large ones too if you save for them.) You’re no longer afraid to review your bank and credit card statements.
You’re proud that you save for your future and that you don’t leave things to chance. It lowers your stress. It helps you sleep at night. Hallelujah!
You can make your complicated life a little simpler.
And you no longer treat yourself and your savings like left-overs.
Thanks for reading! I have loads of food essays (delicious recipes too) and thoughtful and quirky simpler living essays waiting for you. (Well over 100 of them!) And this story caught the attention of NBC News in New York!
Originally published at https://thecomplicatedsimple.com on October 8, 2019.