photo courtesy Kevin Lawver

A Penny Saved Is A Dollar Earned – B. Franklin

There is always room for improvement, you know – it’s the biggest room in the house – Louise Liber.
Top 8 Life Hacks aims to improve different life areas such as – health, finance, relationships and self.

Life Hack #7 : Pay Yourself First (Finance)

Recession or no recession, the habit to save is necessary and beneficial. As you look for ways to save money, forming the pay yourself first habit will smoothen the saving process -

‘Pay Yourself First’ is a golden rule of personal finance popularized by David bach in his books – Start Late, Finish Rich, The Automatic Millionaire etc, by Robert Kiyosaki in his books Rich Dad, Poor Dad, Increase Your Financial IQ etc.

Pay Yourself First basically means – Every time you get a pay check, the first cut from it should be yours. You can pay others later, first you should pay yourself.

This ensures that every month (or biweekly or whatever your payment schedule is) you save money since you can’t make any excuse of not having money. Whatever percentage you decide, that much income should go into your savings and is not to be touched. The entire month is to be managed on rest of income as if that is all you earned (yeah it is kind of forced saving).

Reasons To Pay Yourself First –

• 1. You save money every month without fail; and that too a fixed amount (no irregularities)
• 2. Your budgeting skills improve as you try to manage entire month with the rest of money
• 3. When you pay yourself first, you are telling yourself that saving is important and on your priority list. This forms a strong backbone for your money saving habits.

How To Pay Yourself First -

• 1. Set up a separate account and transfer money everytime you recieve your pay.
• 2. If your employer matches your contributions to a retirement account, make most of it. You will not only save more every month, you will get bonus money in form of what your employer matches.
• 3. Take the pain out of the process. Automate it. Your bank should offer some kind of monthly savings/investment plan. If you find one suitable to you, take advantage of it.

Important Notes:

• 1. Pay yourself first means ‘saving money’ and not buying something for yourself. You can however, save money in any form you want – cash, gold, stocks, debentures, mutual funds etc – based on your preferance and comfort.
• 2. If you have debts, you might want to weight benefit of saving money against benefit of paying off debt.
• 3. Paying yourself first does not say that you can spend away the rest of amount. The more you save, the better for you. If you can chip in more at end of the month, do so.

Do you follow the pay yourself first strategy to save money? How do you do so?

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