Pay Yourself First


When it comes down to it, you need to take care of yourself first. I know this seems counter intuitive. Think of it when your are on an airplane going threw the safety checklist, “If airbags deploy, put the air mask on you first, then your child“. Think the same thing when figuring out to save for your retirement before doing anything else. If you pay yourself first, by saving for your retirement, then you can move along to all the other items on your list. If you get to it last, chances are you already spent the funds you would have needed. “Pay yourself first” is a popluar personal finance term.All you need to do is setup an automatic deduction from your banking account to either your savings account (for short term needs -like an emergency fund) and/or to your retirement accounts. If you think about this, most of us are already doing this with our 401ks (if you’ve set them up).  When you wait until you’ve paid other bills first chances are you already spent the money on something. With money automatically deducted to savings, you will not factor it into your checking account balance when paying for other things. This one little act will really help you in your retirement years or if an emergency unexpectedly comes up. Think of it as out of sight and out of mind. Meanwhile after months and years this sum definitely adds up.

If you aren’t sure you can afford to do this, then setup a small amount first and track how you are affected after a month. If you don’t notice it at all, then I’d increase the amount until your notice it. If you are trying to increase your 401k contribution, then try increasing by 1% or 2% deduction and see if you feel the pinch. For your 401k you definitely want to contribute enough to max our your employer match if you have one (I mean that’s free money). But then try increasing a little more to see. Then I would look to see if each year your could stand raising it by 1%.

By starting this idea of saving for yourself first, you begin to get into the habit. If wait till you’ve paid all bills and spent money on discretionary things chances are you won’t have a penny left. By simply shifting the savings first, then bills, and then discretionary, you’d be surprised that what you may need to do is just eat out once less or don’t go to the movies as often in a month.

Most people with kids will argue that you should save for your child’s college fund (which is important if you do want to help with their college). Here the same airline habit is important, put your airbag on first, then there’s. Your child can get student loans or scholarships for college, there is no loans for funding your retirement. If you say that’s what Social Security is for, well, we don’t even know if or how much Social Security will be around by the time we retire. And for the Baby Boomers retiring now, they know it barely pays for retirement at it’s current state.

a broken fortune cookie isolated on white with message "your efforts will pay"

The best outcome of saving for yourself first is you’ll be setting up a good financial habit, you’ll be more adequately prepared for money emergencies, and your saying saving is important.


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