One of the key concepts in a lot of personal finances books is that you need to pay yourself first and I couldn’t agree more. This past month I have been tracking my spending in my weekly budgets and for those of you who have been keeping up you might have noticed that I quietly added an investments line in my weekly budgets. This wasn’t done by accident! I have set up a small withdrawl from my account that coicides with my pay and by small I am contributing a grand total of $50 every pay into a mutual fund.
I haven’t really felt any significant change in my lifestyle or other spending as a result of this $100 per month. While I’m still living a bit beyond my means it also doesn’t mean I’m forced to eat macaroni and cheese for my meals to make it work. I have been using my weekly budgets to get an understanding of my spending habits to get them under control in order to live within my means while paying my debts down. This isn’t going to be a quick and easy fix but as part of this whole mix is my need to set aside some savings even if meager.
At the end of June I had no savings and as of today I’ve got $211.11 in that account (there will be another $50 going into the account later this week). I know that this is a paltry amount and wouldn’t really matter in the grand scheme of things but I am Paying myself first. By the end of the year I should have close to $750 (or more) in that account and while this isn’t quite enough to retire on it is enough money to cover a few emergency expenses if they come up.
Why Pay yourself first?
For years now I had intended to set aside money in some basic investments and always planned to do so with budgeted money. Unfortunately I always planned to make the contribution at the end of my budgeting period. Regardless of if it was two weeks or a month I always thought that I would put money in just before I got paid. My logic was always that this would give me some money to work with just in case. This is a load of horse shit and a big stinking one at that. By paying yourself first you force yourself into making the rest of your budget work.
I am not advocating that you set aside 50% of your budget to investments or savings when you get paid (though if you could do that then you’re doing something right). What I am suggesting is that if you want to build up some form of savings account put the money into the account the moment you get paid. This will force you to make the rest of your money last till you get paid again. I am currently tight for cash and setting aside a few hundred dollars per pay would probably make my day to day life a bit tougher, but I know I could afford $50 so thats what I put in. It doesn’t affect my quality of life nor any bills (I am capable of missing those with or without the $50).
It adds up!
That small amount that I’m setting aside translates to $1200 a year and I’m not really making any changes in my life to get that. The best part is that this money is already starting to grow. While I’m not a financial advisor nor a junior Warren Buffet I will suggest that if you’re going to do this speak to a professional. If you’re only investing a small amount there might be perfect investment vehicles for you to get the best return on your money. I am using a couple mutual funds for my investing purposes and until I have more funds to invest with this will be my vehicle of choice. If you don’t know much about investing it shouldn’t stop you from building your savings, even an ING account will add up to $1200 a year with my contributions.
The moral of the story is that even if you’re tight for cash by paying yourself first you can start a small savings or investment account. Remember even a small savings account is better than no savings account.