Pay Yourself First: What It Means and How It Builds Wealth
This money habit helps you put your financial future first.
We all know that it’s good to contribute regularly to a retirement plan, keep a rainy-day fund on the side and set aside a little bit each month for the things we really want—like a condo in that new Kaka‘ako tower, a trip to Italy or a new set of wheels. We make a vow to start working towards these future goals, yet, a month passes and we’ve saved nothing. Then another month passes, and then another one after that.
If this hits close to home, you’re not alone: According to a recent Bankrate survey, only 23 percent of Americans have enough emergency savings to cover six months of expenses (the amount many advisers recommend for financial security should something unforeseen happen)—and 26 percent have no emergency savings at all. We know saving is important, we want to do it, so why is it so hard to save?
When you’re busy taking care of yourself right now, the future often takes a backseat. You’ve probably dealt with the frustration of when, after rent, bills, groceries, gas for that grungy car and a couple of pau hana hangouts, there really isn’t much left to put away in a savings account.
Pay Yourself First
A popular piece of advice in personal finance, this habit can be a simple, yet effective, tool for anyone trying to build wealth. Rather than paying everyone else first, then saving whatever is left over, try the opposite: Set up automatic transfers in your checking account that will draw a portion of each paycheck for savings, retirement or whatever long-term goal you have. Then, use what’s left over to pay your bills and other discretionary expenses.
If you’re worried that paying yourself first could mean not having enough to cover your monthly expenses, there are two things that can help. First, start small. Even if it’s just a few dollars each week, that adds up overtime. Set up those automatic payments once and you’ll be investing in your future each month, effortlessly. Second, look at your spending habits and see where you’re willing to cut down on costs. Maybe it’s downgrading your cable or internet, brown-bagging lunch once a week, hosting a potluck instead of dining out or making coffee at home.
Saving isn’t a number. It’s a habit. And, like any good habit, sticking with it will make life better for you down the road. No matter how little you pay yourself, you can be proud that with every cent, you’re investing in your own future.