In the world of finance and personal investment, the phrase "pay yourself first" is becoming more and more popular. Rather than paying off all your bills and bills first, and then setting aside the remaining money, you will need to learn how to do the opposite. So reserve a portion of your money for investments, retirement, studies, security advances or anything else that requires a long-term effort, and only then take care of the rest.
Steps
Step 1. Create a separate account separate from the others
It should be reserved for a single specific objective, usually savings or investments. If possible, opt for an account with a higher interest rate, such accounts usually limit the frequency of withdrawals, which is a good thing since you don't intend to remove your money anyway.
Step 2. Determine the amount you intend to deposit into that account and how often you intend to do so
For example, you can decide to pay 300 euros a month, or 150 every time you receive your paycheck. This will vary based on the use you intend to use that money for. For example, if you want to accumulate € 20,000 in 36 months (3 years) to pay the down payment on a house, you will have to save around € 550 per month.
Step 3. As soon as the money is available, deposit it into the designated account
If you have a direct deposit, a portion of each of your salaries will automatically be paid into your separate account. Alternatively, if you know you don't risk running into a bank overdraft and then have to pay any surcharges due to the red period, you can set up an automatic monthly or weekly transfer from your main account to the separate one. Your goal will be to move the money before you have a chance to spend it any other way, including bills and rent.
Step 4. Leave the money alone
Don't touch them. Do not take a part of it. For emergencies you should have a separate fund specifically for that eventuality. This fund should be enough to cover your needs for three to six months. Don't confuse an emergency fund with a savings or investment account. If you find that you don't have enough money to pay your bills, look for an alternative way to earn them or cut your bills. Do not pay them with your credit card (see the Warnings section).
Advice
- Even small savings will be useful in the future.
- If necessary, start small. It is better to set aside 5 euros, or even 1, per week than to save nothing. As expenses decrease or income increases, you can increase the amount reserved for paying yourself.
- Give yourself a goal, for example "In 5 years I will have 20,000 euros". It can help you stay motivated.
- The idea behind paying yourself first is that if you don't, you will always find ways to spend your money until there are few left. In other words, it is as if our expenses "expand" to match our earnings. By reducing your income by paying yourself first, you will be able to keep your expenses under control. If not, be resourceful rather than tapping into your savings.
Warnings
- If you become more and more dependent on credit cards, so that you can pay yourself first, it means that you have not understood the concept. Why save 20,000 euros for a deposit if in the meantime you are accumulating 20,000 euros of debt (to which you can add the interest due)?
- In case your expenses are urgent, for example due to overdue rent, it may be difficult to pay yourself first as suggested in the article. Some argue that you should always pay yourself first, in any situation, while others believe that in some cases you should pay the others first. Finding the right balance is up to you.
