If you listen to the financial gurus you hear it all the time “Pay yourself first”. Do you understand what that means?
How often have you said, I will pay my bills and then save what is left over at the end of the month? And what is left at the end of the month? Nothing!!
You need to reverse your thinking. The first bill that you pay each month must be the money you are paying to yourself. Have an automatic deposit out of your checking account into a savings account each time you get paid. Ideally, this will be 10% of your net pay. If you cannot do 10%, then start at 5% or 3% or even 1% if you have to.
If you must start with less than 10%, then determine when you will increase it to get to 10%. If you are starting at 5%, then agree in two months you will increase it to 6%. Two months after that you will go to 7%, then 8% and up to 10%. Or agree to do it in 30 days. You want to get to that 10% as quick as possible.
Why stop at 10% though? Many extreme savers are saving 20% or 25%. Their goal is to be able to retire early, purchase a vacation home, or send their child to a private college. This can be especially important if you are behind in your retirement or college savings.
Make it automatic. Banks will set up for an automatic transfer into a savings account – just like you can pay your bills or have direct deposit into the checking account. If that money is not available in your checking account it is less likely to get spent. If you have to remember to transfer the money each time, statistics say that it will not get done on consistent basis for extended periods of time.
You will re-organize your spending to live on less. Think about this – did you not live on what you were making before you got your last raise? And now do you wonder why you cannot live on the higher income you have with your raise? Do you get that bonus and cannot remember what you spent it on?
How many of you remember how much you received for an economic stimulus check last spring and what you spent it on? Having prepared hundreds of tax returns I can tell you many of you do not remember how much you got or what you spent it on.
It is human nature to increase your spending to accommodate additional income. The reverse is true also – you will decrease your spending to accommodate less income.
If you know that it is too easy for you to transfer that money from the savings back to the checking, then make it difficult to do so. Use a different bank from where your checking account is. Do not have an ATM card for this savings account. Use a bank across town or with inconvenient hours. Do not have online banking access to this account. Or use an online bank so that you have a delay of when you can get access to the funds. Require withdrawals to have two signatures so it is harder to get money out.
If you really want to get serious about savings, develop a list of things you are saving for and have multiple savings account. One account for emergency money – for when the car breaks down, your child breaks his arm, or when a repair needs to be done to the house. An account for Christmas. A vacation account. An education account. Accounts to pay life insurance premiums, property taxes, or other non-monthly payments. Maybe accounts for those special items you want to purchase – the big screen TV, the new furniture, new carpeting, or a new computer. You can create as many savings accounts as you want.
Get started. Make it automatic. Avoid raiding the account unnecessarily. Be consistent.
And – happy saving!!
If you listen to the financial gurus you hear it all the time “Pay yourself first”. Do you understand what that means?
How often have you said, I will pay my bills and then save what is left over at the end of the month? And what is left at the end of the month? Nothing!!
You need to reverse your thinking. The first bill that you pay each month must be the money you are paying to yourself. Have an automatic deposit out of your checking account into a savings account each time you get paid. Ideally, this will be 10% of your net pay. If you cannot do 10%, then start at 5% or 3% or even 1% if you have to.
If you must start with less than 10%, then determine when you will increase it to get to 10%. If you are starting at 5%, then agree in two months you will increase it to 6%. Two months after that you will go to 7%, then 8% and up to 10%. Or agree to do it in 30 days. You want to get to that 10% as quick as possible.
Why stop at 10% though? Many extreme savers are saving 20% or 25%. Their goal is to be able to retire early, purchase a vacation home, or send their child to a private college. This can be especially important if you are behind in your retirement or college savings.
Make it automatic. Banks will set up for an automatic transfer into a savings account – just like you can pay your bills or have direct deposit into the checking account. If that money is not available in your checking account it is less likely to get spent. If you have to remember to transfer the money each time, statistics say that it will not get done on consistent basis for extended periods of time.
You will re-organize your spending to live on less. Think about this – did you not live on what you were making before you got your last raise? And now do you wonder why you cannot live on the higher income you have with your raise? Do you get that bonus and cannot remember what you spent it on?
How many of you remember how much you received for an economic stimulus check last spring and what you spent it on? Having prepared hundreds of tax returns I can tell you many of you do not remember how much you got or what you spent it on.
It is human nature to increase your spending to accommodate additional income. The reverse is true also – you will decrease your spending to accommodate less income.
If you know that it is too easy for you to transfer that money from the savings back to the checking, then make it difficult to do so. Use a different bank from where your checking account is. Do not have an ATM card for this savings account. Use a bank across town or with inconvenient hours. Do not have online banking access to this account. Or use an online bank so that you have a delay of when you can get access to the funds. Require withdrawals to have two signatures so it is harder to get money out.
If you really want to get serious about savings, develop a list of things you are saving for and have multiple savings account. One account for emergency money – for when the car breaks down, your child breaks his arm, or when a repair needs to be done to the house. An account for Christmas. A vacation account. An education account. Accounts to pay life insurance premiums, property taxes, or other non-monthly payments. Maybe accounts for those special items you want to purchase – the big screen TV, the new furniture, new carpeting, or a new computer. You can create as many savings accounts as you want.
Get started. Make it automatic. Avoid raiding the account unnecessarily. Be consistent.
And – happy saving!!
