Day 8 Pay Yourself First
Most likely, the way you’ve been letting money flow out of your life is to spend it on what you need and want now, and then put any leftover toward savings. But over the last few days, you’ve learned that savings have to take precedence if you want to stay on track to meet your goals.
As you may remember from Day 1, our goal for you was to shift the flow of money in your life to this:
Over the last several days, you’ve come up with new things you want to save for and freed up money from unnecessary spending. Now that you’ve done this work, you can start “paying yourself first,” which means siphoning a portion of your paycheck toward savings even before you spend any of it on your life now. If you do that, you’ll be taking care of your future self and will achieve your goals.
Your Savings Buckets
Aside from retirement, you should always have two savings buckets.
#1: Emergency Fund
Think about what would happen if you lost your job or if times got tough. How would you pay your rent, let alone manage transportation, groceries and the phone bill? Or what if there was a medical issue in your family and taking care of it required a procedure that insurance won’t cover? Wouldn’t it be nice if, at those times of crisis, money didn’t burden you further but gave you a little peace of mind? That’s your emergency fund. It’s your safety net at the time when you absolutely won’t want to worry about anything else.
Make sure you’re holding the money as liquid cash in a savings account instead of tied up in investments. That way, in a true emergency, you can access it any time.
#2: Dreams and Goals
The second bucket is for your dreams—as distilled into your S.M.A.R.T. goals.
In order to make headway on your goals, you must literally pay yourself first. That means setting up discrete savings accounts, preferably not at the same bank where you do your checking, for your emergency fund and each one of your S.M.A.R.T. goals. Using a separate bank will make it harder for you to dip into savings when your resolve weakens.
Then—and this is important because this is the paying yourself first part—schedule regular direct deposits from your checking to your savings accounts on payday so you never even see the money.
Once you have this system in place, your cash flow will look like this:
DO YOU HAVE AN EMERGENCY FUND?