Are you struggling to increase your savings?
If you’re finding you don’t have enough extra money to add to your savings account after bills and living costs are paid, it may be time to consider boosting your financial stability in the long run by paying yourself first. What this entails is taking your total income and immediately “paying” yourself by depositing money into your savings account—with the rest going towards your regular living expenses.
As you may imagine, paying yourself first will take some preparation and discipline to do right so that you don’t end up falling short on your other responsibilities. These tips will help you get started paying yourself first while increasing your savings quickly and sustainably.
When you’re calculating your monthly costs, prioritize paying yourself before your other bills to maximize your savings.
Why You Should Start Paying Yourself First Now
The biggest advantage of implementing a pay yourself first system is your ability to increase your savings, ultimately allowing you to cover any emergency expenses if needed. Those savings may one day be your down payment on a home, or it may be a step towards your retirement. According to a Pew Trusts report, over 40% of U.S. households would not have enough money saved to cover a $2,000 emergency expense—which goes to show just how important it is to increase your savings for long-term security.
Furthermore, by prioritizing paying yourself first, you’re also getting into the habit of prioritizing your savings and your future. According to the AARP, a comfortable amount to have saved for retirement is 10 to 12 times your income. By starting to increase your savings today, you’ll be prepared for any surprise expenses and you’ll be better prepared when it comes time to start planning for retirement.
Start with Reducing Your Outgoing Expenses
One of the biggest concerns consumers have about paying themselves first is the fear there won’t be enough left over to cover monthly bills and expenses. It’s crucial that you stick to a budget when planning for your savings. Start with some simple calculations:
- Your net income each month (how much you make after taxes and deductions)
- Your total necessary bills (utilities, mortgage or rent, car payments)
- Your total necessary costs (groceries, gas, etc.)
- Your total optional bills (cable, streaming services)
- Your total optional costs (clothing, dining out and entertainment)
From there, start thinking about how to better budget in areas that won’t disrupt your lifestyle but will allow you to save some extra cash. Begin thinking about your savings account as one of your most important bills to pay and start prioritizing those monthly deposits.
Your financial stability will increase with every transfer to your savings.
Use Automatic Transfers to Protect Yourself from Yourself
When you pay yourself first, you’re dedicating a set amount of your paycheck to your savings account. However, if you receive your paycheck and plan to transfer the amount to savings manually, you have far more opportunities to not go through with it, or reduce the amount you end up transferring.
Instead, set up automatic transfers between your checking account and your savings account with direct deposit. You’ll never have to see or touch the money, meaning it gets to the account safe and whole. Consider using a reloadable debit card like the Green Dot Prepaid Visa® Card so you can set up lightning-fast direct deposit from your paycheck while still having the option to deposit cash. Be sure to check out Green Dot’s simple fees so you can set aside enough for that, too.
Any Large Amounts Should Go Straight to Your Account
Did you get a bonus? Put it in your savings account. You’ll be less likely to spend it frivolously, and you’ll get a big bump in your balance. The same goes for tax refunds and any other large amounts. You can also get creative with your saving; let’s say you got a raise and you’ve already been paying yourself first. Try increasing the amount you send to savings by the total bump you received from your raise. You won’t notice any changes to your lifestyle, as that money will be in your account before you even get to think about it.
Arm yourself with the resources that’ll help you start off your savings with success, and remember to always pay yourself first.
The views and opinions expressed here are those of the author and do not necessarily represent the views of Green Dot Corporation.