Pay Yourself First
How do you avoid not spending every penny you make, especially today in the age of modern advertising?
There is one simple rule you can follow: Pay yourself first. Lots of people have claims on the money you make: the taxman, the landlord, the bank, the finance company, etc.—sometimes it seems as if that “etc.” includes everybody but you.
That’s not right; after all, you make the money. One way to get out of this dilemma is to pay yourself first. That doesn’t mean to splurge on yourself at the beginning of the month because, after all, it always seems as if there’s never any money at the end of the month. Instead, it means to put some money away in a savings account or some other place at the beginning of the month because otherwise there never will be any money at the end of the month. You’ve got to have a savings plan.
Make Your Investing Automatic
You can arrange to have money automatically taken out of your checking account at a certain time each month and sent to a mutual fund such as Fidelity, T. Rowe Price, or Vanguard to be invested.
At your mutual fund company you may have both your big emergency fund and your IRA. Your big emergency fund may be a money market account on which you can write checks as long as they are for an amount of $250 or high. You may have two IRA accounts (perhaps the Vanguard Total Stock Market Index fund and the Vanguard Total Bond Market Index fund; other mutual fund companies have similar funds). You also should have your paycheck automatically deposited into your checking account each month. I recommend that you that you have money taken out of your checking account and sent to a mutual fund to be invested each month, perhaps a day or two after your paycheck is deposited.
You can easily go online and set this up after you have established an account at a mutual fund company. You can have a certain amount of money sent to your money market fund (your big emergency fund) and to your IRAs.
Each month you will live on the money that is left in your checking account after your monthly investments have been made.
This has many advantages:
- You are paying yourself first. You make your investments, and then you live on what’s left. Paying yourself last does not work for most people. Some people think about investing the money that is left over at the end of the month, but seldom is any money left over.
- It is done automatically. All you have to remember to do is to go to your personal computer and put the transaction in your personal finance such as Quicken.
- The money will add up quickly over the months and years.
- With money in the bank and money in investments, you will feel better about yourself.
A Well-Stocked Larder
One of the advantages of having money is having a well-stocked larder. When things are on sale, buy more of them than you need. Fill your kitchen or storage room with canned food (bought on sale), paper goods (bought on sale), and items that are used every day (be sure to buy them on sale).
The advantages of doing this are many:
- You’ve saved money by buying on sale.
- You’ll have a nice feeling of security that comes from having a storage room stocked with things you need.
- You won’t run out of the items you keep stored.
- You won’t need to run to the store as often to get something essential.
- You won’t be affected by inflation so much since the stuff that’s stored was bought at yesterday’s (sale) prices.
- You won’t need to dip into savings to buy food at the end of the month if your larder is well stocked with food bought on sale.
- If there’s ever a natural (or man-caused) disaster in your area, you’ll be better prepared than many of your neighbors.
Copyrighted by Bruce D. Bruce
The above are excerpts from my FREE eBook How to Manage Your Money: A Guide for the Non-Rich, available here: