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Len Penzo dot Com

The offbeat personal finance blog for responsible people.

100 Words On: The Importance of Always Paying Yourself First

By Len Penzo

When it comes to saving money, the biggest hurdle for most folks is the lack of available cash after paying all of the bills every month. Fortunately, this seemingly impossible problem is easily fixed by paying yourself first — not your creditors. One of the most effective ways to do this is by taking advantage of your employer’s automatic 401(k) paycheck deduction.

The bottom line: Whether you’re saving for retirement or big-ticket discretionary items, or building an emergency fund, paying yourself first makes the job easy. Best of all, once you get in the habit, you won’t even miss it.

Photo Credit: o5com

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10 Comments May 11, 2017

Comments

  1. 1

    krantcents says

    June 16, 2011 at 9:03 am

    I would cut discretionary spending before creditors! Start small to establish a savings account and add to it over time.

    Reply
    • 2

      DC says

      June 16, 2011 at 1:22 pm

      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.

      Reply
    • 3

      Len Penzo says

      June 16, 2011 at 8:10 pm

      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. 🙂

      Reply
  2. 4

    retirebyforty says

    June 17, 2011 at 6:22 am

    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.

    Reply
  3. 5

    Karen says

    June 24, 2011 at 5:27 am

    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.

    Reply
    • 6

      Len Penzo says

      June 28, 2011 at 5:07 pm

      I like the spend half / save half philosophy. As for the savings trick: what a creative way to save money, Karen!

      Reply
  4. 7

    Bret @ Hope to Prosper says

    February 7, 2014 at 10:20 am

    This is the best way to save by a mile. Once you get into the “Wants and Needs”, your paycheck is long gone.

    Reply
    • 8

      Len Penzo says

      May 12, 2017 at 3:11 pm

      Very true, Bret.

      Reply

Trackbacks

  1. How to Pay Off Credit Card Debt Quickly (No Matter What You Owe) - Len Penzo dot Com says:
    September 11, 2017 at 4:15 am

    […] When you’re creating your budget, don’t try to boost cash flow by stopping automatic paycheck deductions to your retirement savings plan. Over time, the tax breaks and future investment gains you’ll […]

    Reply
  2. 11 Retirement Saving Tips for Twentysomethings (& Older Folks Too) – Len Penzo dot Com says:
    April 14, 2018 at 5:36 pm

    […] retirement saving painless (Part 1). Eliminate the temptation to spend discretionary funds by paying yourself first and the best way to do that is by automating your 401(k) or IRA […]

    Reply

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