What it means to Pay Yourself FIRST.
Many people are concerned about their financial future: stock market performance, reduced social security benefits, rising costs of healthcare. We hear about these concerns all the time from our clients. And they are BIG concerns.
But the biggest concern has more to do with these two things:
Do you spend less than you make?
Do you Pay Yourself FIRST?
The Debt Cycle
Most Americans have some form of consumer debt (either car loans, student loans or credit card balances, and excluding a primary mortgage). According to recent Federal Reserve data, the average household carries over $16,000 in credit card debt. We are borrowing from our future income to pay for our current spending, and it's damaging our ability to save. I can't say whether it's necessary or not, but what I can say is that a constant state of indebtedness is no way to build long-term wealth. You cannot keep borrowing from your future to pay for your present and expect to have anything left when you get there.
Tip #1 to securing your financial future: Live Within Your Means.
I cannot say this enough. Financial fitness starts with this one principle: spend less than you make. And that's really easy to say, but really hard to do. It's hard to work to stay on top of your budget, know where your dollars are going, and resist the urge to increase spending along with your income. That being said, there are a handful of personal finance applications available that can make this both easy to manage and right at your fingertips. Some banks even offer budgeting apps as a free service, and there are other free or paid-for online programs to help you. If you don't trust yourself to develop a budget you can stick to, meeting with a financial professional who specializes in financial planning might be worth the cost.
The main point is this: you need to know where your money is going. Simple awareness will give you more control over your monthly spending, and you will consciously start setting limits and boundaries on your spending.
Once you get a better picture of your spending habits, you need to prioritize your budget. Which brings us to the next tip for securing your financial future:
Tip #2: Pay Yourself First.
What does this look like? It means as soon as you deposit your paycheck, a little bit (try 10%) should go into a savings account, FIRST. As in, before you pay for anything else, pay yourself.
Why should you pay yourself first? Because you always forget about YOU. You'll pay the landlord or the lender, the cable guy, the gas man, for school, for kids, for dinner's out, for vacation, and then you'll look at what's left and throw that into Savings. And most of us will have $0 left at the end because we love spending money.
So try it out! Pay yourself first (before everything else) and watch your savings grow faster than you thought it could. You won't miss the amount you save, and after one year you'll be surprised (and maybe even a little excited!) to keep saving more.
Let's start saving again.
If you would like to talk or learn more about how to pay yourself first, give us a call (805) 569-1982.