Paying yourself first is not a new concept, although it is a concept that most people do not use. Why is it that we find it so hard to take care of ourselves first? It should be a very simple concept.
Paying yourself first needs to happen ASAP, this cannot wait till you think you are ready to do it. We have to make it happen and we need to make it an automatic deduction in our finances.
So how do we get started, well let’s begin by figuring out how much you need to pay yourself first. There are many topics on this subject although I believe that saving 10% is a great start. Now I know not everyone can jump in with 10%, I absolutely did not. I am sure there is something we can give up or shift in our spending immediately that will give us the funds we need to get started ASAP. For each of us that something will look a bit different. It could be that morning coffee, packing your lunch one day a week, or limiting your spending money for the month. However you decide to make the shift, do it today. Do not wait, time is against you!
Here are some basic calculations that can help you understand what you need to be saving. Take your gross income (before taxes) per check and multiply it by a percentage, today we will use 10%. (Gross income) $2024.00 Biweekly * .1 = $212.00. If you do not know your gross income, use your hourly rate of pay. $18.50 * .1 = $ 185.00 (this is after tax). So you should be saving somewhere between $185.00 and $212.00 biweekly for this example. “Are you crazy? I do not have that much money to put aside each payday!” Yes, I know that frustration, we all have it. You are not alone but let us help you get started.
First, are you putting any money into a work retirement fund? This could be a 401K, 403B, or TSP. Your employment will determine your options. Let’s say for this example you are putting in 5% of your income before taxes. Great you’re half way there. This is a combination of savings to equal your 10% not each savings, although if you are married or have a significate other, each of you should be doing the 10%. If you’re lucky, your company does a match. You put in 3%, they match 3%. Whatever their match percentage is, you should be taking advantage of it. This is a bonus, you do not want to let go of. So as I stated earlier start here. Do at least the match to get yourself started, if you are not already.
Second, are you putting any money in a savings account? Now ideally we want to have our money compounding quickly and savings accounts do that normally do this but they are very important to have cash available when needed. So make sure you have an automatic deposit from your account into a savings each pay period. Start small, it will still add up. $2.00 this pay period is $53.57 at the end of the year. Yes, that $1.46 is not going to make you rich this year, but what about 10 years from now you will have saved $711.70 just from $2.00 biweekly. Look at our resources page for a fun calculator you can use to see what your savings can turn into.
Third, are you utilizing a Roth account outside of your work accounts? If not, did you know that you can invest $6000.00 (under 50) and $7000.00 (over 50) each year into a compound interest account that will grow and work for you. A Roth IRA is a special individual retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax free.
Now let’s total our contributions into each of these funds, how much are you paying yourself first?
If you’re not between your hourly wage and 10% contact us and we can help you find the money in your budget to start paying yourself first. YOU ARE WORTH IT!