Making "Pay Yourself First" Work

Saving isn’t easy. It’s especially hard when you try to save what’s left over after you’ve paid all your other expenses. For one, you may not have much money left over after paying bills. And after spending all your money on life’s necessities, you may not feel motivated to put money in savings. You’d probably much rather enjoy what you have left. That’s why many financial experts recommend the “pay yourself first” method of saving money.

Paying yourself first is exactly what it sounds like – put money in savings or investments first, before you pay any other bills or make any other purchases. Do it immediately after you get paid and you don’t have to think about it again until your next payday.

Automate Your Savings

Make it automatic if you can. If you participate in an employer-sponsored retirement plan, you can probably have contributions automatically deducted from your pay. You just decide the amount and the payroll department does the rest of the work.

Depending on your employer, contributing to a regular savings account can be just as effortless. Some employers with direct deposit allow you to divide your deposit between two or more accounts. Decide how much you want to save, and then have that amount direct deposited into your savings account. The remainder can be deposited into your primary checking account.

Another option is to set up an automatic transfer through your bank on a specific day of the month. Make sure the automatic transfer coincides with your payday, so the transfer doesn’t cause you to overdraft.

Don’t let the inability to save automatically keep you from saving at all. You’ll just have to manually transfer or deposit the money into a savings account. Treat it like any other bill or expense. You wouldn’t skip your mortgage payment or electric bill. Don’t skip your savings either.

Save As Much as You Can

Saving isn’t limited to money you receive from an employer. Tax refunds, end-of-the-year bonuses, and any other windfall is also a candidate for saving. And if you weren’t expecting the money, you can probably save more of it without much hardship. If your boss gives you a raise, start saving the extra amount automatically instead of increasing your cost of living.

Don’t put off saving because you don’t feel like you make enough money. Save anyway, even if it’s a small amount. Then, evaluate your current spending to see if there are places that you can cut back so you can save more money. Revisit your savings amount every few months and adjust it upwards as you can afford to.

If you typically get a tax refund each year, you may have too much money withheld from your paycheck. Adjusting your withholding can add a few extra hundred dollars to your pay that you can contribute directly to savings. You’re used to making it without the money anyway.

Know what you’re saving for. You’re more likely to stick to your savings habit and less likely to withdraw money from savings if you have a goal. Two big savings goals are a healthy retirement fund and a nice emergency fund. Besides that, you might save up for vacation, holiday, down payment on a house or car, new furniture, or a myriad of other purposes.

If you’re actively paying off debt, you might set your savings amount low to start with. However, you should still save something every month, even if it’s just $25. It gets you into the habit of saving. And when you’re finished paying off your debt, you can start saving what you were paying on your debt each month.

Once you start saving money, you won’t regret doing it. You will, however, regret not saving if you put it off for too long.