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Managing Your Money

 

 

Saving: Pay Yourself First!

 

“Paying Yourself First” refers to the practice of automatically making a savings contribution or investment with your income before it can reach your wallet. You “pay yourself first” when you contribute a percentage of your income to your retirement plan or savings account each pay period. The transfer to your savings or investment account is done automatically, before you receive the rest of your income for paying your monthly living expenses. When you pay yourself first, you ensure the specified amount of money you want to save really does make it into your savings account or investment, since it happens before you have the opportunity to use the money for something else.

Making the decision to pay yourself first removes the temptation to skip a planned contribution and keeps your savings and investment goals on track. Creating a system for paying yourself first establishes a priority for your savings and helps you develop strong financial habits. People who spend their money in the reverse order — paying everything else before saving — generally reach their retirement years without a nest egg.

The easiest way to make sure you save a percentage of your income each and every pay period is to pay yourself first with an automatic savings or investment plan. Consider your savings or investment another expense that you must pay, and set it up just as you would any other automatic payment made to one of your creditors. Then you can forget about it. The money is invisible to you, and you will learn to adjust the rest of your spending habits to the income you have after your savings or investments are made.