Does your money have a sneaky habit of disappearing before you’re able to put any of it away in savings?
If you want to start consistently saving larger chunks of your income instead of putting away whatever happens to be left after all of your bill paying and spending for the month, you can probably benefit from this one simple habit.
It’s one of the most effective techniques there is for saving more money, and it’s called paying yourself first.
Saving More Money by Paying Yourself First
What it means that as soon as you get your income, whether it’s a weekly paycheck, a lump sum for some project you worked on, or whatever, you take some amount off the top. Treat it like it’s a bill that you have to pay every time you get your income – No Exceptions!
Take this money out of the account that you use to pay bills and buy things, and put it somewhere else. A lot of people set up a separate savings account for this. I invest it in my brokerage account. Where it goes isn’t important, as long as it’s somewhere you won’t spend it.
Of course if there’s an emergency and you need it, you should always have access to it (unless you already have a well-stocked emergency fund) – so don’t invest it in anything you can’t sell right away.
This is more of a human psychology play than anything else. If we were all perfectly disciplined with our financial habits, this would be a waste of time and energy… I don’t know about you, but I’m not.
Creating this little hurdle for yourself of having to get the money back out of your savings in order to spend it seems to be just difficult enough – it makes you ask yourself, “Do I really need this new TV or gadget?” and more often than not, at least for me, I tend to decide that I’d rather save it, invest it, and use it for something much more worthwhile in the future.
So How Much Do I Transfer?
This can be a tough question. If you have a budget that you’re working from, you should know how much is left over after all of your fixed and variable expenses. If you don’t have a budget, first of all, you should start one, now, before it’s too late - (check out our budgeting course on Udemy). But you could always start small. Just take $50 or $100 from your next paycheck, and see if you can make it through the week or month without it. Then bump it up the next month. Remember, you can always get it back when you need it. The idea here is just to figure out how much you actually DO need!
If this makes sense to you, maybe you should test it out! See if your impulse spending doesn’t dramatically drop and you start saving more money the first time you try it. Here’s a couple actionable steps you can do right now.
- Call your bank and set up a new savings account.
- Set up an automatic payment in your online banking of $50 to this new account, repeating every month
- Another option, if you use direct deposit, is to just ask for a direct deposit form at your bank and have them put some of each paycheck right into your new savings account.