It’s easy to do.
You might have good intentions about saving money, you may even have specific goals in mind. But…
Even before you get your pay cheque, there is rent or the mortgage to pay, bills to pay, and the groceries to buy.
You need to put petrol in the car. The kids come home and tell you of a school excursion that needs to be paid… like, tomorrow mum! A friend calls and asks you out for a catch up, and quite frankly, by the time Friday comes you could really use that drink. Or two. Heck, while we’re here, I may as well have another one. The kids will have to have pizza for dinner.
Saturday comes and you see a top on sale. You could do with a new work shirt. And the kids really need new shoes for Summer, they’ve already knocked the tops off their big toes, which are hanging over the end of their sandals.
Before you know it, there’s no money left, and you’re hanging out for your next pay. That savings goal? It will have to wait until next week.
And next week never comes.
Can you relate to this? I can. Sometimes it feels like it’s impossible to get ahead. And just when you do finally have a windfall (maybe a tax return) the hot water heater blows up or the car needs a new radiator and you’re back to square one.
The golden rule of managing your money
You may have already heard the golden rule dozens of times.
You know it, it makes sense.
Pay yourself first.
Before you pay the bills or the rent or anything else, put some money aside for your savings. That’s right, your savings should take priority over landlord’s savings or the shareholder’s savings of your Telco.
Just like exercising first thing in the morning means you’re more likely to get fit (before the motivation runs dry and all the busyness of the day takes over), paying yourself before everyone else, means you’re more likely to build a healthy savings account.
But most of us don’t do it.
We’re too busy treading water. Those bills aren’t going to pay themselves and the landlord might not understand it when we tell him our savings come first.
But here’s the most AMAZING thing about paying yourself first.
You step off the treadmill.
You’re no longer living from pay to pay, trying to scramble to pay the bills and meet expenses.
You’re no longer relying on the vicious cycle of debt to get you by.
Why paying yourself first will result in golden sunsets, fields of daisies and strawberry daiquiris
Dreaming of a new home? A trip overseas? An easy retirement?
If you pay yourself last, you may or may not reach your saving goals. If you pay yourself first, you’re well and truly on track for success.
When you consistently deduct a regular savings amount from your pay, before you pay anything else, you won’t even notice it’s gone. Your spending will adjust accordingly, as long as you’re not making up the deficit with debt.
With a little help from our good old friend compounding interest, it’s amazing how quickly your savings will add up. And seeing your success will motivate you to keep going, or even increase your savings amount and reach your goal sooner!
Your savings will not only help you reach your financial goals, they will also act as an emergency fund and create a buffer against the unexpected.
The sooner you start paying yourself first, the bigger your savings will grow and the sooner you will meet your savings goals. You can’t start saving too early, but at the same time, it’s never too late. Start now.
Common mistakes people make about paying themselves first
1. Thinking you need to earn more money before you can start saving
You might be thinking, yeah, well, that’s all well and good, but I’m barely making ends meet as it is. There’s no denying that the smaller your income the harder it is to save. It IS hard!
But it’s not impossible.
Don’t wait until you’ve got more money to start saving, because there will always be more expenses to match your income. The longer you wait, the less likely you will be to start and the less you benefit from the compounding power of time.
Even if it’s only $5 each pay, even if it’s only $2 each pay, start saving now. Get in the habit and when you do earn more income, the habit is already established and you will be more likely to prioritise increasing your savings amount rather than spending your pay rise.
2. Not saving consistently
Consistency is the secret sauce to achievement.
To lose weight, you need to exercise regularly and consistently; to learn to play the guitar, you need to practice regularly and consistently.
To save money, you need to put aside a regular amount each and every pay.
3. Robbing your savings
It’s hard when you’ve got immediate expenses that need paying, not to look at the money you have sitting in your savings account and not use it.
Sometimes we soften the blow by promising ourselves we’ll make it up later. I can guarantee, you won’t make those savings back up later.
Unless it’s an emergency, do everything you can not to rob your savings for day to day expenses.
4. Not automating your savings
The key to successful savings is to automate it. Have your set savings amount automatically deducted each time you get paid, on the day you get paid.
If you stop and think about it, there will always be more pressing expenses. There will always be a reason not to save. By not automating your savings, you have to find the motivation to save each and every time you get paid.
That’s way too much pressure.
Use psychology to your advantage and know that too many decisions makes it more likely for us to make poor decisions as the day wears on. Automate your savings and it’s one less decision to make each week and you will always make the right move.
You’ve heard it a thousand times before: pay yourself first. But do you? If you don’t, take 5 minutes now to set up an automatic payment from your pay. Even if it’s just a couple of dollars, that will start you on a life-long habit that will always see you get ahead and stay there.