9 Ways to Pay yourself first

pay yourself first

1. Treat your savings accumulation like a bill, and pay yourself first.

Before paying those bills make sure you pay yourself first. 15% is a good place to start. Increase it as often as you can to retire in the lifestyle that you would like.

2. Take full advantage of retirement accounts

Tax-free retirement accounts are the closest thing you can get to free money. You get to build your savings in tax-deductible or tax-deferred retirement accounts. A 401K when matched by an employer amplifies the effect of this retirement savings plan. If you have a 401K make sure you invest enough to at least get the match from your employer.

3. Automate your savings

Set up a direct deposit from your paycheck to your savings account to pay yourself first. You won’t even notice the money missing from your account after a while. The money comes out before you can consume it by buying a Latte. See the Automatic Millionaire blog entry. While you are at it try and automate your bills as well so that you don’t have as much to take care of.

4. Create other sources of income

Get a side job. Find something you like to do on the side and make money at the same time. You really don’t want to waste time watching another rerun of The Simpsons do you?

5. Use windfalls and raises to save and pay down debt

When you receive a windfall from a tax return or from a pay raise pay down your debt and/or put money into savings or invest it. You won’t miss it because you never received it in the first place.

6. Use Coupons

I use coupons to OfficeMax/Office Depot all the time. I get $10 off $50 spent on office supply products. There are hundreds of ways to save money using coupons. When you’re doing some home renovation look for coupons from Ace, Home Depot or Loews. When we moved into our new house Loews sent us a $100 off coupon. I was amazed. If you are going to buy the products any way you might as well save money doing it. Subway sends me coupons for $5.99 foot-long sandwiches all the time which I take advantage of. It gives me a good reason to walk 2 miles to get there and 2 miles to get back home. Save money and get exercise at the same time.

7. Cut down on impulse buying and avoid buying unnecessary stuff

Do you really need that X. Wait a day or 2 and think whether you really need that thing you thought you couldn’t live without. I tend to shop for the best pricing especially on something large. I recently decided I wanted a new computer and I shopped each of the components hard and saved a few hundred dollars. It took some time, but I like technology so I enjoyed the experience.

8. Reinvest interest and dividends from investments

A painless way to beef up your investments is to reinvest any interest and dividends and give your investments a chance to build. I use the DRIP method of investing. 

The word “DRIP” is an acronym for Dividend reinvestment plan, but DRIP also happens to describe the way the plan works. With DRIPs, the cash dividends that an investor receives from a company are reinvested to purchase more stock, investing in the company grows little by little. 

9. Request a lower income withholding from your Paycheck

Look at the past year and see if you paid anything in taxes. If you didn’t pay any taxes your withholding may be set too high. Lower your withholding and take the excess money that you would have paid and put that money into savings or debt reduction. If your withholding is too high you are giving the government a tax-free loan for the year. You might as well take the money and use it to your advantage.

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