I’ve been really inconsistent with blogging about personal finance and I realized last night during my discussion with Shaina that it’s because I’m always trying to blog about what I’m learning and what I want to do versus things that I already do. Well starting today, that’s going to change.
A really big part of personal finance that I started doing long before I even knew there was a term for it was pay myself first. Paying yourself first means whenever you get a paycheck, put money in your savings account before you do anything else. And yes, that means before you pay your bills, before you go on your shopping spree, etc.
It may sound counter-intuitive but it works! Almost every finance blog, book and adviser can attest to this. You are much more likely to reach your savings goal if you approach saving with this method versus paying all your bills and living expenses first, hoping to have money left over to save at the end. It probably has something to do with the psychology of will power.
Anyway, whats always worked for me is deciding on an amount I want to save, 30% of each paycheck for instance, and then trying it out for a couple of months. If I see that I’m cutting it close at the end of every month or having to frequently borrow from my savings account, I reduce the amount to 25% and I’ll keep adjusting it until I find an amount that I can do without but still live comfortably. Every time I get a raise, the first thing I do is increase that amount. I also put my bonuses and my tax returns in my savings because this is money that I’ve already gotten used to not having. I find it more sustainable to increase my standard of living gradually, while giving my savings account a nice boost during these periods of surplus.