Saturday, October 25, 2008

Pay Yourself First

#18 Money Saving Tip - Pay Yourself First. We all have a list of bills to pay each month - the electric bill, the rent or mortgage, our grocery bill, etc. Before we pay all of these people, pay yourself first. Suppose you get paid once a month. Based on the budget that you worked up for yourself, use the projected amount in your savings column. Then take that money from your monthly paycheck and put it in a savings account. If you pay yourself first, you will not have a chance to spend it. After a few months you will see how quickly your savings will grow. Even if you only have $50 to put away each month; at the end of the year you will have $600 in savings. At the end of two years you will have over $1000! It's very easy to spend that $50 each month. Even a cup of coffee a few times a week at a fancy coffee shop will eat up $50. So put the money in savings first to ward off temptation to spend it.

In Real Life (IRL). When I worked for money, I had direct deposit at work and automatically had a set dollar amount go into a 401K for me each pay period. It was great because I didn't miss the money at all because for all intents and purposes it wasn't part of my paycheck. I never saw it. Therefore, I wasn't tempted to spend it. In addition, I had a set amount that I would put away each month for savings for a house. I think it was actually about $200. At the time I didn't have a family or husband so it was just me and my expenses were fairly low. Each month I wrote a check for $200 to a mutual fund company and after a few years I had a tidy sum in there. Money doesn't have to go to a mutual fund or any kind of sophisticated investment. A regular savings account is fine. The main point is to put the money away each month

1 comment:

Thomas Watson said...

Is retiring early too risky?