Financial Advice: Why You Should Pay Yourself First

Lately, I have found myself jumping from blog to blog. I recently came across an article that I found very true. It is especially true in these tough economic times. The title of the subject on the blog was simply "Pay Yourself First."

Most of us make out a budget to pay our bills and use for the many family expenses that we have. Our budget is set up for utilities, loans, mortgages, credit cards. fuel, groceries, and family expenses. Many times we are looking for ways to make cuts or save some cash that can go for other things. We even cut back on some things in certain areas to do this.

The one area that we should not cut back on though is probably the most vital. That area is ourselves. The very first thing that we should do out of any type of income is pay ourselves. Depending on our other financial responsibilities, we need to set a small percentage aside and forget about it.

One way to do this is through a 401k plan. If your employer matches this plan with any money at all, you are adding to it with what I call free money. It doesn't matter that you can't access this money now. Someday it will be there.

I realize that times are tough right now. Still if you just put anything away, it will be a major benefit to you in the future. You can make this very painless. Just set up an account so that it is automatically withdrawn from your check each time you get paid. How much do I recommend? Anywhere from 1 to 10 percent. Each individual situation is different. I mainly want to place a strong emphasis on saving. This is not your emergency fund. That is something that might be there are gone the next day. This is there to stay until that special moment in time.

Let's put it this way. Have you ever thought about accumulating wealth? I know some people that make it a challenge to themselves to see how much they can raise just to be doing it. Anytime that they come across extra cash, like the recent stimulus package, they place it into a special savings account. I even know of a husband and wife that make a game out of it to see who can save the most by reaching a specified goal. The spouse who comes in second must pay for a special night on the town at the winners request.

Most individuals will try to save some money after they pay their bills first. This is wrong because once you make all those payments, you start thinking well what's in this for me. You then end up spending the money usually on something that you don't need. That is why you pay yourself first. That is why you should do it as painless as you can. Once you get use to this, you find that you are able to make the adjustments to keeping up with your bills like you always have.

Right after World War II, there was a strong emphasis placed on savings. However, somewhere along the way it changed to indebtedness. That is why our country continues to run a deficit in it's annual spending. This disease has spread and has become a way of life. Now I am not against anyone having the new I-phone, laptop, or automobile. I am just saying that we need to get back to what will help us survive and that is saving.

Once you notice that this part of savings has grown to a nice sum, look to put it in an account where the interest rate will help it the most. That way it will grow with more free money. The free money from the interest.

You do three things by paying yourself first. 1. You are mentally establishing savings as a priority. 2. You are encouraging sound financial habits. 3. You are building a cash buffer for real world applications.

If you have a son or daughter that is fairly young, encourage them to start a Roth 401k. The value of compound interest and compound returns that is tax free will help their savings grow.

This all comes back to one simple issue. Pay yourself first.