Simple Steps to Pay Yourself First
By: Beau Henderson
Are you saving regularly?
Many people never save because they think it is too complicated, but the concept of saving is really quite simple. Developing the discipline of saving is what takes a little work.
The three reasons I hear most for not being able to save are: I don’t make enough, I’ll save what’s left, and I have too much debt.
Do you relate to any of these reasons for not saving?
Let’s examine these excuses together, one at a time, and find out how you can start to pay yourself first. The good news is that You can begin to save now, today, because paying yourself first is a mindset and a habit that has nothing to do with the size of your paycheck.
Reason #1: I don’t make enough money:
There are two kinds of people – those who save now and those who wait. The employee who makes $2,000 a month and gets in the habit of putting $50 of it away will have $600 saved by the end of the year. The same employee who waits until they can “save more” will have $0. And after 10 years, they still won’t have anything saved, and will still be waiting to have enough to save.
Are You Playing the “When I/Then I” Game?
It goes something like this… “When I can save $200 a month, then I will start to put away money for the future”. The problem with this game is that it rarely, if ever works and our nature is to always create the next “When I/Then I” scenario instead of developing the habit needed to be successful with money.
Get into the habit of setting aside a portion of what you make now.
It doesn’t matter how little, it can be $5 or $5000. The important thing is to get in the habit. If you can bump up that amount annually by at least 3% or $25 a check as your pay increases, and in ten years, you’ll be saving at least $250 a paycheck. But it will never add up like that unless you get started.
Reason #2 I’ll save what’s left…
and typically what’s left is nothing. It happens to everyone. Saving won’t happen if you approach it this way. It is human nature to spend what is there, so don’t even give yourself the option. Take out the amount first, before you’ve even see it. Have it automatically deducted if you can, and put it into a separate account. Once you get in the habit of doing this, you won’t even miss it.
Put it on Auto Pilot For Success
To be successful at paying yourself first make savings automatic. Your company’s 401k, 403b, SEP, or other retirement plan can deduct a percentage of your income pre-tax from your paycheck. You can set up an automatic draft to fund after tax savings like ROTH IRAs, brokerage accounts, and savings accounts. You have to plan for real life and can set up automatic drafts to fill up separate buckets for emergency savings, car fund, house maintenance.
Reward Yourself to Stay on Track
All of this automatic saving is great, but if you want to stay on track you have to build in some rewards for all of your disciplined hard work. Most successful clients build in buckets or automatic accounts to fill up for things like a road trip to see the grandkids, an annual trip to Vegas, or a deep sea fishing trip with the guys.
Remember, financial success is about living well. These memorable experiences are priceless and need to be planned and saved for or else we are right back to playing the “When I/Then I” game in this area as well.
Reason #3 I have too much debt:
The truth is those that have the discipline to pay themselves first get out of debt faster.
Debt won’t go away unless you pay it off and nothing will get saved unless you start now. So split the difference. Come up with a formula that you can live with using these 4 components:
1. An amount you can live off – 70%
2. An amount to save – 10%
3. An amount to go towards debt – 10%
4. Giving back – 10%
If you need every penny, the breakdown can be 97%, 1%, 1%, 1%. What happens when the debt is gone? You’ll be able to increase your savings without having to change your lifestyle or spend a penny more.
This is not Rocket Science, the only hard part is developing the discipline.
Paying yourself first puts the focus where it should be – on the person whom the money was meant to serve. In my experience, it is never the behavior of the investment that makes the difference so much as the behavior of the investor.
You are the most important asset that you have. Take care of yourself. It might be hard at first, but getting into the habit now will result in easier saving tomorrow. This is one of the core principals necessary to building a RichLife. It is my most sincere hope that you achieve yours.
What is your biggest obstacle when it comes to paying yourself first?
Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams. To learn more about living a RichLife, grab a free copy of Beau's best selling ebook "7 1/2 Lies That Keep You From Being Rich" Now www.richlifeadvisors.com/member
