Did you know that paying yourself first can help you save more money?
I will first explain the concept. By paying yourself first, I mean take out any money you wish to save, and then leave the rest for spending.
Transfer the money to another account, and this will help you identify what money is for you to spend now, and what money is for you to spend later.
Your bank, or your parents probably told you that you should have a savings account. So you put money in, and then take money out, and then put money in and then spend it all again, and then there’s no point saving because it doesn’t work, right?
Did you know that paying yourself first can help you save more money?
I will first explain the concept. By paying yourself first, I mean take out any money you wish to save, and then leave the rest for spending.
Transfer the money to another account, and this will help you identify what money is for you to spend now, and what money is for you to spend later.
Your bank, or your parents probably told you that you should have a savings account. So you put money in, and then take money out, and then put money in and then spend it all again, and then there’s no point saving because it doesn’t work, right?
Here’s some reasons why it will help you save more money:
1. Pay Yourself on Pay Day (Or the Day After)
If you wait until the day before pay day, then you will have spent most of it, and therefore reducing the amount that you want to save. Put it aside on pay day, or the day after pay day, even if it’s just $5.
2. Less Money in Your Spending Account = Less Spending
If you choose upfront an amount to put aside, then there’s less money in your spending bank account. And if there’s less money in the account, you’re likely to spend less. We’re great at expanding our spending to match our income, and so if we intentionally reduce our income by filtering it into another account, we will spend less.
3. Name Your Savings Account Something Specific
If you name your savings account something really specific, such as the name of your savings goal (e.g. red Honda Civic) then when you go to spend that money and it’s not on a red Honda Civic, your emotions are going to start helping you to stop spending that money.
If you then choose to buy a couch with that money, your goal of buying that flash new red Honda Civic is now further away. If you had the bank account name “Savings” then it really doesn’t have any emotional ties, so you’re more likely to spend it.
4. Set Up a Play Money Account
By setting up a Play Money account (or Splurge account if you’ve read the Barefoot Investor), this will allow you to have all of the fun without compromising the money you have for saving for that special something, nor impact on your bills that you have to pay.
I always recommend a Play Money account for everyone in the family, so that there’s some guilt free spending allowed in every pay. My kids also get an automated allowance so they can buy their own lunches, gifts, movie tickets, and clothes.
5. Automate It
And speaking of automating, make sure you get the bank to do the hard work! Set up an automatic transfer on the day of or the day after pay day to transfer the money to your “super shiny savings account” and then you don’t have to remember, or wait, or find other things to spend the money on.
Give It Time
Note that it can take time to get used to creating a savings habit, so don’t feel bad if you have to use it to start off with – it does get easier over time.
Super simple tips to save more and you end up spending less.
Disclaimer: This information is general in nature and doesn’t take your personal circumstances into account. Always seek professional advice for your specific situation.
