Can you imagine how much easier adult life would be if only someone taught us how to save?
Most of our population is in debt or has zero emergency savings because no one has ever explained how to do it properly. Fortunately, it’s never too late to learn and improve your savings game.
Paying Yourself First is a method of saving that comes in handy for everyone who is just starting out and creating their nest egg. But if you take the “pay yourself first” strategy to the next level, you will ensure financial security and flexibility.
The best part?
Whether you’re trying to break bad habits and start saving, or you want to improve your savings, we will show you how to utilize this method for the best results.
Let’s get started!
The Idea of Paying Yourself First
“Pay yourself first” is a phrase that was first used in the book The Richest Man in Babylon by Robert Kiyosaki. The motto is simple but straight to the point: pay yourself first before spending a dime anywhere else.
People often get their monthly income and allocate specific amounts for different things like bills, groceries, and other discretionary spending. After paying all of that, the remaining money is considered “savings.”
The problem with this logic is that since you didn’t define how much money you want to save, you will use every last penny of your income. When people don’t set aside money for their savings, they consider it “spending money.”
Paying yourself first is a reverse budgeting method that prioritizes saving and helps limit spending. You treat your savings account just like any other expense. And when you get the paycheck, you first pay yourself a certain amount that works for you.
Why is it Important to Pay Yourself First
As we insinuated above, when people don’t prioritize savings, they spend all of their monthly income. This is the reason why 53% of Americans have zero savings.
By paying yourself first, you force yourself to save and stay disciplined. Of course, every change in habits is initially challenging but also very adaptive.
A huge advantage of this financial strategy is that if you manage to do it for only a month, you will most likely be motivated to continue.
There are a few things you should do to set yourself up for success.
The Proper Way to Pay Yourself First
- The first thing you should do is establish a specific amount of money you want to save. If you don’t calculate how much is objectively possible for your situation to save, you can easily end up with an unreachable goal or with too little savings.
For people who have fixed incomes, it will be easier to set dollar amounts for a savings account. And for people with different incomes, it’s wiser to determine the percentage.
- Make a list of priorities. It’s good practice to list different things and purposes you want to save for. Depending on your stage of life, you might prioritize retirement or buying a bigger house for your future family.
- People who use this strategy regularly, including us, found that automatic transfers are a true game-changer. It is a personal savings system where you automatically transfer a specified amount from your checking account into your savings account at a particular time.
You can also select where you want your money to go from the checking account—a retirement account, an investment account, or other savings vehicle.
- Create a budget based on what funds will be available after paying yourself first. Monthly expenses and spending can be managed while still tucking money away.
Different circumstances will determine which savings goal we will have. Here are some common goals people have while using the “pay yourself first method.”
The term “emergency fund” refers to money stashed away that people can use in times of financial distress. The purpose of an emergency fund is to improve financial security by creating a safety net that can be used to cover unexpected expenses like car repairs, medical bills, or loss of income.
If you want to create an emergency fund, you should think about cash or other highly liquid assets. This is important because it reduces the need to either draw from high-interest debt options like credit cards or unsecured loans or undermine your future security by tapping into retirement savings.
How much money you need for your emergency fund will depend on numerous factors, including your financial situation, expenses, lifestyle, and debts. But the general rule of thumb is to have enough money to cover anywhere from three to six months’ worth of expenses.
Americans are better at saving for retirement than emergency savings, but the situation is far from perfect. According to a study, about 78% of Americans have $50,000 or less for retirement.
Usual options for retirement savings are work retirement plans like a 401(k) or a 457(b) and individual retirement accounts like a traditional IRA or a Roth IRA. If you didn’t find your way to save, don’t wait any longer.
You can also have retirement contributions automatically deducted from your paycheck, so you’re certain you won’t miss saving that money each month.
Besides everyday expenses, we always have something bigger in our heads that we want to finance. If you want to buy a new car, go on a trip to Europe, pay college tuition, or make another big purchase, the pay-yourself first strategy is your friend.
For better results, you can also try to cut your unnecessary expenses, make more money on the side, or try the 50/30/20 budgeting strategy. For example, instead of driving daily to work or the gym, you can ride a bike and save $100 in gas monthly.
Also, instead of buying takeout, you can prepare a quick and healthy meal at home and save $50 weekly. And there are many ways you can make more money besides your regular job.
Pay Yourself First Method on the Next Level
Paying yourself first is a powerful personal finance strategy, especially for people who are just starting. Unfortunately, it is not powerful enough to achieve all of your financial goals, like generational wealth and extra money in your pocket.
But the combination of the pay-yourself-first budgeting strategy and Lifestyle Banking will help you achieve all of your long-term financial goals.
Are you familiar with Lifestyle Banking?
If not, here is everything you need to know.
Lifestyle Banking is a financial strategy that utilizes a specifically designed whole life insurance policy. The idea is to replicate the traditional banking system.
But why would someone do that?
Traditional banking is almost as old as the human race. But banks became just businesses looking for their own profit instead of everyone else’s.
Banks are not “giving” us loans; they are selling them. On top of that, they charge us everywhere they can.
So, Lifestyle Banking replicates the traditional banking system, but with one significant difference—instead of banks getting wealthier and wealthier, you are.
How to Become Financially Secured
Whole life insurance policies have a cash value component that can grow and accumulate over time. When the cash is accumulated, you can borrow money against the policy and use those funds to finance anything you need, like financial emergencies, living expenses, or other bills.
The next step is to pay yourself the money, but with interest. Instead of throwing away your money in interest to banks, you are adding it to your policy, which then makes more money and increases your death benefit.
By taking out loans and paying them back, you recapture the interest that the bank would otherwise charge. You grow your money every time you repeat the process.
On top of that, you set your own interest rate and time frame for paying back the loan.
As a result, you have a personal banking system that works for you and not against you.
Savings are unquestionably one of the most important parts of our financial lives.
Unfortunately, no one teaches us as kids how to save money and set savings goals.
The good news is that it’s never too late to improve your spending habits and create a nest egg. The pay yourself first method can help you achieve that.
Pay yourself first is a great starting point because it doesn’t cost anything, and you can see results in a short period of time.
When you successfully build the habit of paying yourself first, you can move to the next level, bringing peace of mind and financial security.
In the money mindset change, it’s crucial to have support and like-minded individuals who are on the same path as you. That’s why we created the Pay Yourself First challenge!
Are you in?
In the 4-week challenge, you will save $500. But that’s just the beginning.
What’s most important is that you will learn the foundations of pay-yourself-first budgeting and how to continue doing it by yourself. On top of that, you will have your first $500, which you can use to buy a whole life policy and take your financial situation to the next level.
Join our pay-yourself-first challenge today and make a difference in your savings game!