You may always say that you’ll up your retirement contributions (next pay period, you promise!) or stash a little extra in your emergency fund, but somehow another month passes and you still haven’t done it.
The problem is likely that by the time you’ve paid for everything else—rent, groceries, utilities and maybe even a few dinners out—you often don’t have enough left to add to savings … at least not until your next paycheck. And so the cycle goes.
If this sounds familiar, it could mean you’re not in the habit of paying yourself first, which isn’t the same as spending money on yourself. “Paying yourself first means saving before you do anything else,” says David Blaylock, CFP® with LearnVest Planning Services. “Try and set aside a certain portion of your income the day you get paid before you spend any discretionary money. Most people wait and only save what’s left over—that’s paying yourself last.”
In other words, the goal of paying yourself first is to help make sure your future self’s key financial goals are covered, including building up an emergency fund, contributing to retirement and saving for any other long-term goals, like a down payment on a new home. Bottom line: It’s important to have these bases covered before you spend any portion of your paycheck on, say, a happy hour with friends.
Of course, this means you need to get into the mind-set of paying yourself first—and that can be a challenge for even the most money-savvy among us.