pay yourself first
March 31st, 2021
Pay Yourself First: How to Automatically Start Saving More Money
Like going to the gym or eating a healthy diet, saving money is one of those concepts that’s simple to grasp but weirdly challenging to put into practice. We understand its benefits. We agree that it’s essential to our well-being. We know that it’s something we should be doing. But paycheck after paycheck, it’s the same routine: after the bills have been paid and the regular expenses have been looked after, there just isn’t quite enough left over for our savings goals. We blame our lack of financial willpower and promise ourselves we’ll do better next paycheck, but more often than not, the cycle repeats itself. If this scenario seems all too familiar, consider automating your personal finances in order to pay yourself first.
Paying yourself first is an effective savings strategy because it takes willpower right out of the equation. Rather than struggling to increase your self-control, you simply reduce your need to put it into action. When you get paid, a portion of your income is immediately funneled into your savings (the size of that portion is up to you—to figure it out, take your total monthly income and subtract your essential monthly expenses, then decide how much of the remainder you want going toward your savings goals). That portion may be small at first, but it will add up over time and get you in the habit of saving consistently. As your savings grow and as you make progress on your financial goals, you’ll see your monthly cash flow in a new light and prioritize your budget more responsibly. The best part is that you’ll be protected against future moments of budgeting weakness.
Automate your paycheck
Your employer can help you reach your savings goals before your paycheck even hits your account. Take advantage of any retirement savings plans offered through your employer—especially if they include employer match. If you get paid by direct deposit, ask your employer if they accept multiple deposit accounts. If so, have a portion of your paycheck deposited directly into your savings account each payday.
Automate your checking account
If your employer doesn’t have the ability to deposit some of your paycheck into your savings account for you, do the next best thing: set up a repeating automatic transfer from your checking account to your savings account. Schedule the transfer for shortly after payday—that way, as you budget out your month, your savings will already be safely tucked away out of sight and out of mind.
Automate your savings goals
Admittedly, throwing money into a generic savings account every month isn’t a particularly imaginative experience. It’s not representative of the future happiness you’re creating with your savings goals. Increase your motivation and excitement around saving money by reminding yourself of the specifics of your goals. The Credit Union offers “You Name It” accounts which allow you to set custom titles according to the purpose you have set for them. Watching the numbers grow in “Surfing in Costa Rica” or “Dreamhouse with patio and fire pit” is more compelling than simply “Saving.” Get even more granular by setting up regular automatic transfers into each of your subaccounts.
Look for extra opportunities to save
Once your automatic savings plan is in place, look for little ways to make additional contributions to your savings accounts. Empty the contents of your spare change jar once a year and deposit it into your savings. If you participate in any sort of cashback rewards program, consider putting that “extra” money toward your savings instead of spending it elsewhere. Also, consider putting any future income tax refunds toward your savings. You can get creative in finding additional sources of income to help your savings along.