When it comes to saving money, one of the biggest hurdles for most folks is the lack of cash available after paying all the bills at the end of the month. Fortunately, this seemingly impossible problem is easily fixed by paying yourself — instead of your creditors — first. One of the best ways to do this is via automatic paycheck deductions, such as those for 401(k) retirement plans.
The bottom line: It’s easy to build up an emergency fund, and save for your retirement — and even big-ticket discretionary items — when you pay yourself first. Best of all, you won’t even miss it.
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I would cut discretionary spending before creditors! Start small to establish a savings account and add to it over time.
Isn’t that the idea behind “pay yourself first?” Set aside for savings goals, then pay the creditors in full and on time, and what’s left (if any) is discretionary.
The point is to change one’s thinking around, so that discretionary spending takes a lower priority than either paying bills or savings.
You nailed it, DC. If you pay yourself first (which does NOT include your discretionary spending, but instead is intended for your savings), followed by your creditors second, you’ll end up controlling your discretionary spending by default — assuming you make sure you are always spending less than you earn.
We auto deduct the 401k contribution so we have a smaller amount to spend each month. I think that’s good because it forces us to learn to live with a smaller budget.
We were always taught as teenagers to spend half and save half. This worked well when you lived at home with no expenses! In today’s world, you’re right…it’s easy to put everything else before saving. Another trick…when standing in front of that item you’ve just got to have in the store, try to refrain from buying it, then write yourself a check in the same amount. You’d be surprised how much you can save—and how little you really needed that “must have” item.
I like the spend half / save half philosophy. As for the savings trick: what a creative way to save money, Karen!
[...] Len Penzo – Always Pay Yourself First! [...]