Pay yourself first is a financial attitude and expression that is well known in personal finance and retirement planning that means taking away a portion of amount from your salary.
It can also be from the profit of your business or any income that you receive.
Because you are taking away an amount and directing it to your savings, then you are paying yourself first.
Pay yourself first can also be defined as a financial strategy to constantly increase your savings.
It also means paying yourself before you start spending it for your needs like food, transportation, rent and utility bills and living within your means.
This is very helpful especially in this time of crisis when you need to stretch everything out.
Why you should pay yourself first
The amount you are taking away is called your savings. The goal is for you to have extra money saved for different purposes.
Examples are for your unexpected expenses such are repair of your car when it breaks down, when you get sick and needs to buy medicines, or when a storm comes and damaging the roof of your house.
You know these things happen from time to time.
There can also be times that you just want to buy an expensive gadget. Where will you get the money? You may use your credit card if you want to. But saving money up for it is better.
And you can save up by paying yourself first.
You do the pay yourself first to build your retirement fund. It is a big problem if you don’t have enough money when you grow old.
At your old age, you can’t work well already. And no one will hire you too if you don’t have a special knowledge or skill.
It is unexpected. It is unpredictable. You did not want it to happen. But at the end of the day, you still have to fix these matters or problem that comes along.
You cant just sit around and let it pass. And hope for the best that it will take care of itself. It is better that you wake up your senses and do something about’it.
And I would say that saving up for the future unexpected events can be solved accordingly.
And it can be done by saving up money for your emergency fund. Preparing for your future starts with the right mindset.
How is it done?
First is to assess you spending by tracking it. Tracking your expenses is just listing your whatever you bought.
From there, you will be able to assess and evaluate your spending. You will soon realize that you trim something off in your spending.
Next is to decide on a percentage of your salary you would like to save. The basic rule is taking away 10% of your salary.
You may start with 5% if you want as long as you start right away.
Next is to open a separate bank account. All your savings should be put in here right away.
To make it easier, try automating the transfer from your salary account to your savings account.
However, there are banks that require higher initial deposit. In this case, stash your saving in your house for now.
And when you have reached the required initial deposit, it is time to open a separate account.
For example, your salary is 30,000 pesos a month. Take away 10% of your salary which is 3,000 pesos and deposit it in a separate bank account. The remaining 27,000 pesos shall be allotted to provide for your daily needs until the next pay day.
Budgeting skill should also be learned so you would know exactly where your money is going. Budgeting skill is also a must so won’t get out of track and end up using that extra 3,000 pesos.
Summing it up
Pay yourself first means that you do not spend all your salary and keeping some money away for your future needs.
Using the pay yourself first strategy is an effective way to make sure that your savings are growing every pay day.
Consistent and regular contributions will surely go a long way toward building a reliable fund for your future.
If you are young, then you are very lucky because time is on your side. The more time you have, the more money you can save.
As for the older ones, it is not yet the end for you. You can start doing something and start to save money now by practicing the pay yourself principle.
No matter your status in life or how old you are, the important thing is you are taking action and partnering it up with consistency and will power.
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Here is another resource for you to read: What it means to pay yourself first
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