As a kid, most of us started to learn about money by saving – in our money jar, or piggy bank. But as we got older, the desire to spend became greater, and saving became a bit harder or more of an after-thought.
If you’re fed up saving the hard way, let’s look at a financial concept that could completely change your life – pay yourself first.
Saving the hard way
The hard way of saving usually involves setting strict limits on your spending, trying to stick to it and if all goes well, at the end of the month, you have enough left over to save.
Can you even read that sentence without thinking it’s doomed to failure? #fingerscrossed
Let’s see if we can make saving easier…
What is “pay yourself first”?
Simply put, the idea is to set aside a portion of your income for savings or investments before paying any expenses. It’s making your savings an essential expense!
Here's how it works.
When you get paid, immediately transfer a certain amount of money into your savings account (or investment). This could be a fixed amount or a percentage of your income – whatever works best for you and hopefully, ties back to your financial goals. The key is to do it consistently, every time you get paid. Note: You can make it even easier by setting up an automatic transfer.
Of course, paying yourself first doesn't mean you should neglect your other financial obligations. But by making saving a priority, you're setting yourself up for greater financial success.
Then any discretionary spending comes out of the money left over, instead of it being the other way round.
Why do it?
Here's three reasons why making saving easier is a good idea:
By paying yourself first, you're making your goals a priority – a non-negotiable part of your cashflow plan.
It helps you to avoid the temptation of spending on your immediate wants. When you pay yourself first, you're taking the first step towards building the financial future you want.
It helps develop the habit of saving by making it a regular part of your routine, just like paying your bills or buying groceries. Over time, this habit becomes second nature, and you may find yourself motivated to save more than you originally planned.
What do I do with savings?
Where should your savings be directed? As with everything, that depends on your circumstances.
The important thing is to have a clear goal in mind and a plan for achieving it:
There’s a myriad of saving accounts on the market – many of which will pay you bonus interest if you add to your account each month.
If you have personal debt, paying extra off your credit card or loan may be the best form of 'saving' (it's important to always make minimum payments).
If you want to pay extra on your mortgage, be sure to speak to your bank or mortgage broker for advice.
For investment advice, speak to a financial planner. Or if you’re considering super contributions, you can also speak to your accountant or super fund.
Regardless of your financial position, committing to regular savings can give you peace of mind, and greater control of your finances.
Making money simple
So, there you have it – the “pay yourself first” concept in a nutshell. It's a simple one that can have a big impact on your finances.
If you want to learn more about making money simple, get in touch using the link below, and find out how money coaching could help you.