Paying yourself first may be the single most important concept in how to manage money series.
Money Management Problem …
At the end of the month, most people don’t have anything left to save.
Money Management Solution …
At the first of the month, before you pay anyone else, write a cheque to yourself for 10% of your income.
After all, you work for YOU not for the companies you pay your bills to.
“It’s Not What You Earn, It’s What You Keep!”
The three accounts you need to start saving …
Most people need three types of basic accounts. Put yourself at the head of the line. Treat your savings like any other recurring bill that you must pay each month. Dedicate the appropriate amount from your paycheque and set it aside.
- Emergency Fund – This is your reserve fund in the event of an unforeseen emergency, job loss or an unexpected expense. A good rule of thumb is to set a goal of having three to six months’ salary in your emergency fund.
- Short-term Savings – This account is for money that you set aside for expenses you want to purchase within a short-term time frame. For example, here is where you would save for a new computer or perhaps a vacation.
- Long-Term Savings/Investments – This is where your retirement savings, education fund and other long-range savings will go. Because these savings have more of a long-term time horizon, you can use investment vehicles with potential for a higher rate of return, such as equity mutual funds.
While most people think nothing of sending enormous amounts of money to credit card companies on a regular and systematic basis, they balk at the idea of paying themselves first!
Change that mindset.
Cut up your credit cards and put those payments into your own savings.
Make a commitment to pay yourself first!