Here’s the First Thing You Should Do With Every Paycheck

Do With Every Paycheck

Whether your expenses are piling up or you simply lack the financial discipline to sock away a few extra bucks every month, there are myriad reasons why it’s difficult to amount a sizable savings account.

Here’s the problem: Once you get paid, your money has to go several places at once. Bills need to be paid, credit card balances need to be settled, groceries need to be bought, perhaps even some nonessentials, too — and, in all the shuffle, the money that you should be saving becomes your discretionary income, and what should be your disposable money, you dispose of. Zero savings there.

You’re not going to break this cycle until you start treating your own savings account like a bill that needs to be paid monthly, along with your rent, car payment and utilities. You need to learn to pay yourself first.

This means that each time you get your paycheck, the first thing you do is set aside a portion of your earnings to save before taking care of your bills and other necessities. It guarantees that the money you should be saving, you’re actually saving. But a “savings-first” plan requires you to budget your money.

Saving, Bills, Fun: In That Order

As personal finance blogger J.D. Roth noted on his site Get Rich Slowly, “Most people spend their money in the following order: bills, fun, saving.” Developing the best pay-yourself-first plan should allow you to save some money and still afford your bills and responsibilities — neither obligation should suffer. So how much should you save?

In an interview with CBS News, financial expert David Bach said that people should save one hour’s worth of income every day (that’s 12.5 percent of your gross pay). Most people only save 4 percent of their income — just about 20 minutes of work. The trick is to start slow.

Here’s How to Start Saving Your Income

  • Calculate how much you can actually afford — not how much someone else tells you you can spare. Devise a simple budget. Set aside the same amount of money you would for monthly expenses. If they’re fixed, like a mortgage, those bills aren’t going anywhere. Then, figure out how much you can save by cutting back. “You may find that even small changes in spending habits, such as bringing your lunch to work or making less frequent trips to the salon, could create big savings over time,” states Wells Fargo‘s website.
  • Take baby steps that would make Dave Ramsey proud. Paying yourself first is about setting a goal and working to increase it. A lot like attaining a fitness goal, start with lighter weights and increase the resistance. “Some will argue that saving [1 percent] is meaningless,” Roth said. “But if a skeptic will try to save just 1 percent of his income, he’ll usually discover the process is painless. Maybe next he’ll try to save 3 percent. Or 5 percent. As his saving rate increases, so his nest egg will grow.”
  • Strategize. Once you get into the rhythm of saving, you’ll know how much to put away,and where to divert it, like a Roth IRA, high-yield checking account or other investment account. Per Wells Fargo, “Split your direct deposit so that an amount or a percentage goes directly into your savings account before you can spend it. Or, set up an automatic transfer for each payday, regularly sending money from your checking account to your savings account. This can help you get used to managing living expenses with what looks like a smaller paycheck, when actually you’re building up your own savings.”

Follow this plan and check back with yourself in two to three months. Suddenly, everything falls into place: You’re able to save a bit, stay on top of your bills and have some money left over, too.

What’s the Payoff?

So, apart from the physical cash (which was there all along), where is paying yourself first actually taking you? Roth states three benefits of this practice:

  1. It develops good mental savings habits. “You’re telling yourself that you are more important than the electric company or the landlord. Building savings is a powerful motivator — it’s empowering,” Roth said.
  2. It creates good financial habits. Remember: savings, bills, fun. By learning to save first, “you’re able to set the money aside before you rationalize reasons to spend it,” according to Roth.
  3. Saved money is practical money. That savings will come in handy someday because it builds a cash buffer for everything from emergencies, to retirement funding, to a house down payment. “Paying yourself first gives you freedom,” Roth said. “It opens a world of opportunity.”

Keep Your Promise

Investing author Joshua Kennon observes that most people are careful to keep their word to someone, but have no problem lying to themselves. Don’t let this happen with your new savings plan.

“As soon as you miss one ‘payment,’ odds are, you will miss another, then another, until you have stopped saving altogether,” Kennon wrote. “The secret to success in this game is not so much the amount of money you are investing, but the persistence with which you are doing it.”

Don’t just rearrange your income, either — look for ways to save extra money, any way you can. The Digerati Life recommends doing everything from requesting higher withholdings on your tax forms, to banking savings from coupons and discounts, to pretending you haven’t yet paid down your debt (even if you already have). In the long run, it’ll make a significant financial difference.

It’s never the wrong time to begin saving. “No matter what your age, you should make it a priority to develop a regular saving plan,” Roth wrote. “Establishing this habit early can lead to increased financial security later in life.”.

By paying yourself first, the last thing you’ll have to worry about is having zero savings when you need money most.

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  • Allie G.

    It’ so important to save money and pay your bills off, otherwise you’ll just get into the habit of living just within your means, rather than below your means.

  • Candace

    I started off saving $25. Little by little it grew to over $1000.00
    My peace of mind and security can not be measured.

  • big b

    think about this have some fun every day life is too be enjoyed.

  • Ryan

    I’m putting about 30% of my income into stocks and 401k at the moment, so I think I am doing okay :).

    • Bob Clarkson

      I’d suggest you start putting money in a savings account until you have at least six months of living expenses available without worrying about stock transaction fee’s.

      After you reach two months expenses, transfer one months expenses to to a 90 day CD for higher interest.

  • jane

    impossiable to sve everything is to expensive

    • dudly

      Dudly, when l was working we had a 401k. Each week I had a mlnlum of $10 dollars taken out for my 401k. It only lessended my take home pay approximately $1.50 to $2.00 each week. This 401k deduction is done before any taxes are taken out of your check. The company you work for (that offers a 401k plan)has to put a certain amount in your account., each payday, whether you do or not. And in my account l joined before 1986, this meant that l was ,(what north carolina plan calls),, baily vested. Which means when l took out my monies that l did not have to pay any state taxes on my 401k, only federal taxes. This was a good way for me to save up some extra money. Sad to say l had to delete my account due to disabilty. The good news was, I had aged past 59 years, therefore l did not have to pay an early withdrawl fee. I thought it would hard to save, but after I started it got easier. So this might just help someone to know. You could also borrow from your own account, at a cheaper rate. And when you pay monthly, weekly, , or bi-weekly on the loan you’re paying it back into your own account. Try it could work for you.

  • Pay yourself first and last!. When I was employed, 10% of my paycheck went into my 401K. Anything left over at the end of the month went into my Roth.

  • Sandy

    My paycheck average $30 a WEEK saving is NOT an option for everyone as this article implies.

    • Bob Clarkson

      $30/week has to be a part time job. Basic necessities (food, clothing housing) can’t even be covered. That would indicare that those things are covered by someone else. If you break your incopme down to savings, bills and fun, you can easily invest a dollar a week on yourself. That is basically less than your pocket change.

      YOU are the single most important thing in your life. YOU are the one most vested in your life. Invest in yourself first.

      Remember also it isn’t just paycheck money to consider. If you get money for you birthday or holidays, put 10% of that money into invesring in your life.

      If you think you can save just a little, you’ll be able to start saving. If you think you can’t save, you’ll be right also. Except you won’t have any means to help cushion yourself during an emergency.

      I once had to use my savings to pay the majority of my bills for three months after the company I worked for was bought by another company. That company eliminated ALL “Redundant”jobs and Training Managers are almost always among the first to go and the last to be hired – unless a company has reached a ” mature state” and realizes the money spent on competant trainers translates into “hard” dollars going to the bottom line.

      Look for that $1 a week. If you’re a minor, most banks offer free savings accounts with limited withdrawals.

  • Ibsyboy

    Europeans work to live. Americans live to work.

    • Richard Heade

      Says who ???

      • Okijarhead

        exactly. I work to live, and have never been to Europe.

  • Lauren

    Some of the best financial advice I have ever received: No credit cards. No credit. Don’t do it.
    If you don’t have the money in the bank, you shouldn’t buy the item. Treat your debit card like cash. You only have as much money as is in your bank account. I put 10% of every check into savings and my husband and I put all the change in our pockets into a 5 gallon jug before we got to bed. It’s half full. Every little bit helps. A raindrop can become a river in time.

  • Connie hooks

    Try to my 17yearsold teen.

  • Pick the Wick

    My wife and I don’t find it easy to save money. We’re on a fixed income, but we don’t have any loans and own our home and two vehicles outright.
    All the same, we find it easy to budget for bills. We keep track of the money we have on hand, and maintain a steady balance in a savings account. There is always some money left over at the end of the month.
    Compared with those who owe money to various people and financial institutions, we consider ourselves blessed.

    To paraphrase what Dicken’s Mr Micawber said:

    “Monthly income $1000, monthly expenditure $1999.50, result happiness.
    Monthly income $1000, monthly expenditure $1000.50, result misery.”

    • Pick the Wick

      Oops. Of course..
      “Monthly income $1000, monthly expenditure $999.50, result happiness.
      Monthly income $1000, monthly expenditure $1000.50, result misery.”

  • Just a Guy

    My retirement plan is the death of my parents. How lucky I am to be born into upper-middle-class America.

    • Just a Smart Guy

      Bitch is you drunk?

    • Richard Heade

      But, you might be a lower-middle-class American, I hope you treated your Parents well in life, what happens if they don’t leave you a bean ???

    • Okijarhead

      What a d*ck

  • Christina Lavingia

    I do this every month too. On the first, just as rent is due, I transfer $500 to my savings account religiously. It’s helped in times when unexpected costs came up, providing me with a lot more financial security plus a higher interest rate.

  • Matthew

    typical Procrustean bed model that we are to conform ourselves too. while we are bombarded with messages everyday telling us how important we are as consumers in keeping the economy growing. which way would you have us be–engines of the economy as debt-laden consumers, or tightwad savers that don’t know how to live in the moment, always thinking of our future selves? we’re wealthy enough as a society not to force people to make these choices…

  • Richard Heade

    ”This means that each time you get your paycheck, the first thing you do is set aside a portion of your earnings to save before taking care of your bills and other necessities.”

    BUT, the vast majority of us cannot do that every month, these holier than thou attitudes do not help folks in low income groups and I ignore such stupid comments, we aren’t all rich with lots of dosh to squander on the niceties in life, we live hand to mouth every month, if I could afford to save I would, it’s not rocket science, but, if I aint got it I can’t save it, can I ?????????

  • Theda Kirkland

    I never learned how to save and it’s hard when you have needy children asking for money. Plus with what I have been through all my life was people stealing from me. So the way I feel is hurry and spend it before someone I don’t know steals it. I’m speaking in terms of people in authority. Those people you can never sue to get your money back. When they find out you have money they will steal it . I’m so paranoid that I feel if I put a lot of money into the bank they will steal it. Now what do you say about that? I almost feel like digging a hole in a remote place. That even goes for insurance too. I save a lot of money and die they will probably tell my children I had no money. I have not been lucky when it comes to money. It’s like people feel that I shouldn’t have any. The bad part is that I don’t. I would love to save but fear sets in. So I say spend it while you can cause you can’t take it with you and your not guaranteed that your family will profit should any unforeseen death occur. We live in a crooked world and everyone is out to get you one way or another.

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