4 Benefits of Paying Yourself First
By Joe Globensky, RFC®
If you’re not familiar with the idea of paying yourself first, or you just need an important refresher, this post is for you. The benefits you can receive from a disciplined savings plan will last you throughout your lifetime, and it’s not hard to get started.
When we receive money, whether it is for work we’ve done, a monetary gift, or even a contest reward, our biggest, and possibly most important, decision to make is, “Do I spend it or save it?” I am here to tell you that it doesn’t have to be an either-or decision.
I want to share with you one of my first post-college, real-world employment experiences as it has lead to a life of paying myself first decisions, although at times they felt more like debates. I was 26, recently awarded my graduate degree, and employed in the financial services industry.
During our training program, one of the trainers spoke with us about our newfound financial prosperity and the possibilities we would have with this money, such as paying off student loans, buying a new car, renting an apartment, and eating real food. But he also made a suggestion that has stuck with me my entire life. He advised that we each start a savings program that we were comfortable with, but also that we would be disciplined about, so we could experience the results of paying ourselves first.
His idea was to start depositing $25 per month directly to a savings program from our paycheck, so it never hit our bank account. And to regularly increase that amount as we received raises or were able to lower our expenses. That is exactly what I did and here are four ways I have benefited from that decision throughout my life, and how you can too.
1 – You Cannot Spend What You Do Not See
With designated money going directly to the savings plan from my paycheck, it was never deposited into my bank account. When paying bills and reviewing how much I had to live on, the $25 did not play into the equation because I didn’t see it in my account.
2 – Compounding Growth is Your Friend
The #1 argument to start saving early in life is compounding. Compounding is the process of generating additional return on an asset’s reinvested earnings. It can happen in bank accounts, investment accounts, and retirement accounts. By setting up a defined system of paying myself first, I benefitted from compounding and allowed my money to work for me while I continued to save.
3 – Emergencies Happen
Most of us have experienced a financial emergency in our life. Maybe it was an unexpected car repair, a home improvement project you thought could be put off for another day, or like me yesterday, a failed compressor in my refrigerator. By paying myself first, I have funds set aside in an emergency account that can cover these unexpected expenses, thereby eliminating the stress of where to find the funds to pay for it.
4 – Discipline, Discipline, Discipline
Paying yourself first does take discipline but, once you start, it is much easier to keep it going. While that initial $25 a month doesn’t seem like much, it gave me the discipline to continue to increase that amount. It gave me the discipline to start contributing to my retirement plan at work. It gave me the discipline I now try to impart to my clients as their financial advisor.
At Connections Financial Advisors, we are here to help you construct a manageable, disciplined saving philosophy that will last throughout your lifetime. Reach out to me at 217-605-8130, via e-mail, or you can click here to schedule a meeting or phone call on my calendar.
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