Recently, we discussed the benefits of paying yourself first. But exactly how do you go about doing that (especially if you feel like you’re living paycheck to paycheck already)?
If you are just starting to manage your money or you simply struggle when it comes to budgeting in the first place, paying yourself first may seem like one of those personal finance concepts that sounds good in theory but is difficult to put into practice in reality.
Fortunately, you can start small, get some good habits in place, and scale up from there. Here are five strategies to help get the ball rolling so you can start paying yourself first.
Strategy 1: Reduce your spending and bank the difference
The first step in implementing this strategy is similar to how you start to budget:
1. Figure out where your money is actually going. Using an app like Mint may help you identify and categorize your major expenses. (Full disclosure: Mint is at its best if you use a debit or credit card for all your transactions. Cash spending is a little trickier, though not impossible, to track.)
2. Figure out what to cut or reduce. Maybe you downgrade your cable package to a plan that doesn’t have the premium sports channels, switch to a no-contract cell phone plan, and increase the deductible on your auto insurance to lower your premium.
Now comes the trick:
3. Bank the difference. Add up your monthly savings from the changes and set up an automatic transfer to your online savings account for that amount. After all, what is the point of saving money if you don’t actually save it?
This can be addictive! If you channel your savings into one sub-account, then as you see it grow each month, you may be inspired to make even more cuts so you can increase the amount of your transfer and watch the savings grow.
Strategy 2: Start small
But maybe that first strategy sounds intimidating though you aren’t sure you can actually save that much each month (especially if you’re currently spending more than you earn). If you really are starting from nothing, part of the problem may just be a matter of perspective. It’s unreasonable to think that you’ll go from zero to thousands of dollars in savings overnight.
Instead, try starting with $20 per month. Surely you have that much to spare, right? Set up an automatic transfer for that amount and see how it feels. This is actually how I started to save money, although it was for a different reason.
Back in the day when I opened my first savings account, an automatic transfer of at least $25 per month was required for the account fees to be waived. That’s no longer the case, but the transfer was already set up, so I never changed it. See? Laziness working in my favor!
Here’s the trick with this strategy:
Once you’ve been successful doing this for a month or so, bump that amount up. Can you save $40? $50? More? You’ll realize when you’ve hit your limit. And while the amount you are saving may not seem like much in the beginning, starting easy with something you can accomplish is kind of the point. Plus, the balance will grow quicker than you think!
Strategy 3: Bank your side-gig income
So you’ve got a side gig or second job. You’re in good company! Anyone can start a side business these days. But where does the money from your supplemental income go? If the answer is to your regular checking account and you’re still not saving any money, you may be able to put those funds to better use by funneling them directly to a savings account.
If it’s a second job, then go ahead and set up direct deposit to go straight to a high-yield online savings account. Out of sight, out of mind — until you log in and admire your new-found savings! If your side gig is your own business, then hopefully you’ve got a business checking and savings account set up so you’re not mixing those funds with your personal money.
Get Rich Slowly.
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