I am not permitted to explain the rules of the game. Nor to acknowledge whether or not we’re playing one.Robyn Schneider
Setting up an automatic payment, with the intend to pay yourself, is a great way to improve your saving habits. And from all the little tricks I could think of, paying yourself first is definitely the most efficient one.
Paying yourself first might spark some contrary beliefs, but it is a great way to make sure that you are putting away money every month. When you pay yourself first, you pay yourself before paying any bills or obligations. This little rule right here is what it makes contradicting to what society is teaching us.
We have learned that bills are the most important thing and that we should take care of those first. When you pay yourself first, this belief changes. I am not saying you should get behind on your bills or not pay them at all. What I am saying is that you are priority number one. Otherwise what is the point of working so hard for so long for someone else, and not keeping a piece of the pie for yourself?
How to pay yourself first
The first step you should take is to determine a fixed percentage that you will save per month. The higher the percentage the better. 20% to 30% is a good place to start, but you might want to increase this number over time, depending on your financial goals. If you are aiming for financial stability, 30% might do, but if you are aiming for financial freedom, this percentage should at least be 50%.
When you have decided the percentage that you will save, or perhaps invest, you ought to set an automated transfer from the account on which you receive your monthly salary to your savings account. Set this transfer for 1 or 2 days after your pay day. Once that transfer is set, you are on your way to become a better saver.
Benefits of paying yourself first
There are several benefits to this method.
The first one is a psychological benefit. When the money is transferred almost directly after receiving your paycheck, you will barely notice that it was there in the first place, so you won’t miss it either. You will grow used to receiving a ‘smaller’ paycheck. Or so it might seem at first.
The second benefit is an emotional one. If you pay yourself before all other expenses, the rest of the month you are free to spend your money without feeling guilty (as long as you stick to your budget 😉 ).
And if you find it hard to save money in general, paying yourself first through an automated transfer might make it just a little easier for you.
The third benefit is that you will become a better saver. When you are saving through an automated transfer, you will save more consistently. Paying yourself first takes away the temptation to spend the money that is meant for your savings account or for your investments.
If you want to give yourself what you are owed, you might want to change your thinking and put yourself at the top of your priorities list. First give to yourself, before you give to others. This does not just count for your finances, but anything really. Some might perceive this as ‘wrong’ or self-centered, but it is merely self preservation and self caring. This is how you should look at it when you are paying yourself first. You are simply making sure that you get to keep some of what you earned through hard work.
Lots of love,