Your most powerful budgeting tool is your income, but if you are not able to save money out of every paycheck, you won’t be making the most of what you earn. Committing to paying yourself first, and setting up a plan to make regular deposits to your savings account can improve your financial picture and ensure you are truly reaping the benefits of your hard work and income.
Pay Yourself First
Make a commitment to paying yourself first each payday – whatever amount you’ve decided you can afford should go immediately into savings. The rest of the money can be used to pay your other expenses. When you pay yourself first, you make savings a priority and make it more likely that the money you intend to save actually makes it into an account.
As your funds begin to grow, it will become easier and easier to pay yourself first – something about watching those balances grow is incredibly motivating. It can be a challenge to rethink the way you handle your income each month, but once you make the commitment to paying yourself first, you’ll be able to enjoy the rewards of a healthy bank account. Not sure how to get started – or worried about sticking to a plan? Automatic deposits can help.
Make It Automatic
Setting up automatic deposits to your savings accounts takes the guesswork out of accumulating money; you can simply choose an amount that suits your budget and have it automatically sent to your savings account. You can set this up at your bank or via your employer; some employers offer the option of splitting your direct deposit and sending it to two different accounts, your checking, and your savings.
Automatic drafts also make it easier to avoid forgetting to save at all – and they help you stick with the policy of paying yourself first. If you spot something you simply have to have online or in a store and the money you’ve earmarked for savings is sitting in your checking account, it is easy to see those funds as extra and overspend. Taking the extra step to transfer funds back to checking or making a withdrawal slows down the buying process and helps you avoid overspending on impulse, too.
If you have the option to contribute to pre-tax savings at your employer, setting up automatic deposits via your HR department is easy – you’ll also have to work a bit to get to your money. Pre-tax contributions can be automatically made before your paycheck even reaches your bank and can allow you to save, but there are penalties for early withdrawals. Use this option if you want to focus on beefing up your long term or retirement savings.
Making the decision now to pay yourself first - -and setting up an easy way to achieve your goals can provide long lasting results. Whether you want to beef up your emergency fund, buy a home or other big-ticket item or just improve your financial health, paying yourself first can help you reach your goals.