“Pay yourself first” is a catchphrase that means prioritizing your personal savings above other expenses. Putting aside money should be a fixed line on your budget that happens every month without fail. Here’s how to successfully pay yourself first.
Review your spending
Take a clear look at your spending. If you already have a budget, this will be as easy as reviewing the column that lists all of your expenses, including your discretionary spending. If you don’t already have a budget, track your spending over several months to identify your primary expenses and to find the average amount of money you spend monthly. To help you track your finances, SeaComm offers a free, online financial management service. This complimentary feature helps you budget and track your expenses, and can be accessed through SeaComm’s online banking platform, NetTeller™. Click here to get started.
Set short and long-term saving goals
Before you start setting aside money each month, you will want to have a clear picture of your saving goals.
Short-term savings, or funds you want to be able to access in the near future if necessary, can be allocated to an emergency fund. Experts advise having three to six months’ worth of living expenses set aside in an emergency fund in case of a sudden, large expense and/or loss of employment. Some people also build a rainy-day fund that can be used to pay for anything at all, such as a spontaneous vacation or a large discretionary purchase.
Long-term savings should include funds you can afford not to touch for several years or more. Your long-term saving goals can include funding your retirement, as well as a down payment on a home, a new car, or any other large expense.
Set a timeline for each savings goal
Now that you have a number for the amount of funds you want to save, you will need to determine a realistic timeline for meeting those goals. You will want to give first priority to your emergency fund, but at the same time it is best not to neglect your future and to start saving for retirement today. This allows time to let compound interest work its magic. To that end, you may want to allocate the bulk of your monthly savings to your emergency fund until you meet your goal. Once your emergency fund is full, you can divide your savings more evenly between your short-term savings and long-term savings.
Calculate how much you will need to save each month
You are ready to determine how much money you will need to put into savings each month to reach your goals by their deadlines. Take your total for each goal, and divide it by the number of months in your timeline. For example, if you have decided you want to have an emergency fund of $24,000 set up in four years’ time, you will divide $24,000 by 48 months to get $500 a month. This is the amount you will need to set aside each month to reach your goal in time. Do this for each of your goals.
Automate your savings
Once your savings plan is ready to go, it is best to make it automatic. You can set up a monthly transfer from your SeaComm checking account to your savings account or money market. This way, your savings will grow automatically each month.
Monitor and tweak as necessary
Life is dynamic, and your savings plan should be, too. If you find the system you have set in place is not working anymore, you can always tweak and come up with one that better meets your lifestyle. If you find that you are short on the funds you need for paying yourself first, consider trimming your discretionary spending in a budget category.