How Much Should You Pay Yourself First After Every Paycheck? – The Ultimate Guide
Should you pay yourself first before any other financial obligation? Well, this article answers that question in a crucial way. If your goal is to buy a car, host a wedding or contribute more on your retirement savings, you need to “pay yourself first” mindfully in order to achieve these goals of yours. What exactly does it mean by “pay yourself first” and why should you pay yourself first? Is it necessary doing this?
What does it mean to pay yourself first? To pay yourself first means recognizing that your most valuable asset, your property, your best investment and your most precious financial resource is “YOU”, I mean “YOURSELF”. It means knowing you are worth setting aside a pre-determined amount of each month’s salary or paycheck for yourself to invest in a way that makes you better. So that you are able to be the greatest possible version of yourself. This is absolutely the most critical step to creating wealth for yourself and your family as a whole, to set aside money to invest in “you” every month, before a single amount is spent on anyone or anything else. You are responsible for creating your own wealth. No one is going to do that for you, may be unless you are blessed with some sort of inheritance. Everyone has a unique ability and it is up to you to invest in yourself. Read also How To Start An Emergency Savings Fund In Simple Steps
How much should you pay yourself first After Getting Your Paycheck?
How much can you realistically set aside each month for yourself?
Deciding how much you can realistically save is completely up to you, it’s about shifting your mindset about what is actually important to you. If you believe you are your very best investment, then deciding to pay yourself first can be as easy as starting with 10% of your monthly pay. Compare what is left (90%) with your monthly expenses. First, break them down into two main categories of “have-to” and “want-to”. There are six primary things in the “have-to” category, have a roof over your head, food in your fridge, clothes on your back, communication, transportation and healthcare. Any expense that falls under these categories is considered a have-to expense. Everything else is a want-to expenses aside these.
You can find the 10% you need to pay yourself first with by eliminating some of the “want-to”expenses. But you really need to think down to whether or not you believe paying yourself first is a have-to or a want-to expense. This becomes a much easier exercise if you resolve that paying yourself first is a have-to expense which is undoubtedly obvious. Read also Check Out How Much Money You Should Have in Your Savings At Every Stage Of Life
How to Put the Habit of “Paying Yourself” into Practice
The merit of “paying yourself first” out of your paycheck or salary is that, you build up a nest egg to secure your future and create a solution for financial emergencies such as car breaking down or unexpected medical expenses. Without savings, many people report experiencing a large amount of stress when the unexpected happen. They’re forced to run onto debt which will harm their financial future. This answers the question “why should you pay yourself first”. Below are how to put ” pay yourself first ” into practice.
1. Automate Yourself Payment
Should you pay yourself first? – The easiest way to put this into practice is to open up a new savings account linked to your checking account or salary account. For many banks, one of the steps to opening that account will be to set up any automatic transfers from your checking account to your savings account. This is where it’s highly recommended start automation by choosing to have these monthly transfers happen automatically on the same day as your deposit. Be sure to keep away from the temptation of skipping a month, that means you are skipping paying yourself. Read also Best Budgeting Tips For Singles That Will Lay The Foundation To Achieve Future Financial Goals
2. Savings Account is The Best Option
For your “pay yourself first” fund, the first place to put these funds to create some feeling of financial stability is in a good bank savings account. How would it feel to have six months or a year’s worth of living expenses set aside in a bank account? It leads to financial stability which can also lead to financial security, through to financial independence. It all starts with a foundation of savings that you can rely on when the unexpected happens. Many people feel a greater sense of freedom to explore possibilities when they feel a basic sense of financial stability underneath them. Read also How To Save Money Every Month With These Simple Monthly Savings Tips
3. Put Funds in Investment or Retirement Account
Once that stability bucket of money is full, you would then be advised to putt those funds into investment accounts or retirement accounts for future financial security and independence. Working with a financial expert is crucial in determining how best to allocate these funds beyond the simple savings account. Read also 8 Financial Secrets To Build Your Lifetime Wealth
4. Have a Goal in Mind
It’s always easier to stick to a habit when you have a goal in mind. What are some short- and long-term goals you should set for these funds?
Learning a new language, taking flight lessons, exploring new places with friends, making home improvements, supporting your children and their education or starting a business. Setting specific short-term and long-term goals can help you stick with it up to achieving them. Read also 3 Best Salary Negotiation Tips To Help Secure A Higher Salary
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