Pay Yourself First

You don't need a fancy budget or to deprive yourself of basic pleasures to start saving, you just need to pay yourself first.

‘A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be much more as you can afford. Pay yourself first.’ -Richard S Clanson The Richest Man in Babylon

I’ve never been a fan of budgets, or restricting myself when it comes to spending money. It either doesn’t work at all, or my anxiety takes it too far and it becomes something I cant control. When I have no plan for my money, I love splurging and treating myself to little things as they come up (like I love getting iced tea from Starbucks even though I know I can buy a box of tea and make it at home for a month for the same price) and all of the sudden I've spent every penny in my checking account.

My anxiety loves budgets. A budget gives me a sense of control, but it's to the detriment of my mental health. Last time I had a strict budget was when I was living with my ex and my anxiety was at its worst. I felt like the only control I had was in controlling my finances. I wouldn’t spend more than $30 on groceries, refused to pay for parking, and took extra dog poop bags from the dog park all to stay on a (ridiculously low) budget. It was unnecessary, made me more stressed and unhappy, and made me into a person I didn't like. My current style of budget falls somewhere between buying whatever you want whenever you want, and strictly mapping out how every penny is spent.

Pay Yourself First

Just like the quote we started with, a part of all you earn is yours to keep. We live in a culture where very little of our money is ours to keep. Now you might feel yourself arguing with me 'I don't know what she means, I keep all my money and get to spend it how I want'. But that's just not true, if you aren't saving your money you aren't keeping any for yourself. You are paying everyone but yourself.

The government takes a share before we even get our checks. Then we pay bill collectors, landlords, and credit card companies. We pay grocery stores, and restaurants, and clothing stores. We give all our money away until we are sitting waiting for our next paycheck. When you decide to pay yourself first, you put aside a set amount of money away from each paycheck into your savings account, then the rest is yours to spend as you please. We’ve discussed why saving now is important. We need money for retirement, education, home ownership, and just a stress-free life. Without a safety net, you are stuck living paycheck to paycheck and always stressed about finances. The Pay Yourself First strategy means that you are consistently saving, but that you don’t have to deny yourself things you want to buy.

Our expenses tend to rise in proportion to the amount of money we have to spend. If you’ve ever gotten a raise, you know that the first new paycheck feels so good, but soon after you can’t imagine how you were living on less before. As we make more money, our lifestyle shifts and we need our new income to support our new lifestyle (economists call this Parkingson’s Law). So if you get paid $2000 and you wait until the end of the month to save, you will probably not have much left. But if you save $200 right away, you may find that you don’t notice the lost income too drastically.

I found that the way I spend money going out drinking is a great real life example of this. When I go out, I spend all the money I have with me regardless of how much I have. If I have lots of cash and my debit card, I inevitably buy shots for the group and take an Uber home. When I only have a little cash, I stick to PBR's for one and walking. The interesting thing is that my level of enjoyment rarely shifts based upon how much money I bring, I'm still out with friends. You might find that you spend your entire paycheck each month because it's what you have available to spend, and that by paying yourself first you start saving without feeling the lost income. Now when I go out, I don't bring a debit card and I only carry the cash I want to spend. I can do whatever I want with the cash I bring out, buy drinks for friends, pay covers, get food, but it's a set amount that I am comfortable spending. Paying yourself first is the same principle - you automatically save part of what you earn and then spend the rest however you'd like.

The easiest way to pay yourself first, is to set up direct deposit with your work. You can have a specific percentage of your income put into your savings account before you even get your paycheck. It’s the easiest, more painless, way to prioritize saving. The general guidance financial advisors will give is that you should be saving 10% of your income. If you can save more, you can reach your goals faster. I am currently saving about 30% of my income. Saving 10% might seem impossible if you are living paycheck to paycheck and spending all of your money on necessities. If that's the case, I would start with just saving 1% of your income and if you don’t notice it I would continue shifting that number upward until it begins to impact your life. It might surprise you how much you can save. Setting up direct deposit is as simple as having your savings account number, and talking the the HR person at your work, so give it a shot!

You could also consider, buying silver each payday if you’d like to visually watch your savings pile up and enjoy the fulfillment of shopping (more on that here).

Once you’ve paid yourself, you can begin spending the rest of your money. Paying bills, making donations and buying yourself nice things. The great thing about this strategy is you don’t need to restrict how you spend your money because you’ve already taken care of the most important thing, your future.