How to pay yourself first
When it comes to personal finances, one of the most important things you can do is pay yourself first. This means putting aside money for your own savings and investments before paying any other bills or expenses. By doing this, you ensure that you’re always saving and investing for your future, no matter what else is going on in your life.
There are a few different ways to pay yourself first. One way is to make sure that you’re automatically transferring a fixed amount of money from your paycheque into your savings account each month. If you have a group savings plan, you can usually do this through payroll deduction. An additional benefit to this would be the compounding interest accumulated over time.
Another way is to set up a budget and make sure that you’re always putting aside a certain amount of your income for your savings. No matter which method you choose, the important thing is that you’re making your future a priority.
Why should I pay myself first?
There are a lot of good reasons to pay yourself first, some of which include:
Save for your future
No matter what else is going on in your life, if you always pay yourself first, it will help you save for retirement or other long-term goals. In fact, did you know that your payroll deductions can be deposited directly into your registered retirement plan before income tax is calculated?
Stay out of debt
If you’re always putting money into your savings account before paying any other bills, you will never get into the habit of using credit cards or other loans to cover your expenses. This can help you avoid a lot of unnecessary debt and interest charges.
Build an emergency fund
This is a fund that you can use to cover unexpected expenses, like a job loss or a medical emergency. If you have money set aside in your savings account, you will not have to rely on credit cards or loans to get through tough times.
Luxuries
If you’re always putting money into your savings account, you could eventually have enough to splurge on a nice vacation or a new car. By making sure to take care of yourself first financially, you can enjoy the things you want while still staying on track with your financial goals.
How do I pay myself first?
Now that you know why it’s so important to pay yourself first, let’s look at how to do it. Here are a few different methods:
Direct deposit
One of the easiest ways to pay yourself first is to set up direct deposit from your paycheque into your savings account. This way, you can make sure that a certain amount of money is always going into your savings without even having to think about it. To set up direct deposit, you will need to provide your bank information to your employer.
Automatic transfers
You can typically do this online through your bank’s website or mobile app. Once you have set up the transfer, the money will automatically move from your bank account to your savings account on a regular basis. This is a great way to make sure that you are always saving without having to remember to do it yourself.
Budgeting
An additional option is to include savings in your budget. When you’re creating your budget, make sure to allocate a certain amount of your income towards savings. This can be any percentage of your income, depending on your financial goals. By including savings in your budget, you can make sure that you’re always paying yourself first.
Reducing non-essential spending
This includes things like going out, getting new clothes, or your daily coffee order. If you can cut back on your non-essential spending, you will have more money to put towards your savings account.
Saving your raises and bonuses
Whenever you get a raise at work or a bonus, direct that money into your savings account instead of increasing your spending. This is a great way to boost your savings without having to make any major changes to your budget.
Why is it important to handle expenses and liabilities first?
For one, it can help you stay out of debt. If you’re always paying your bills on time, you likely will never have to worry about late fees or interest charges. Additionally, it can help you keep your credit score high. Your credit score is an important factor that lenders look at when determining whether to give you a loan. If your credit score is not good and you are trying to get a mortgage or a line of credit, your interest rate could be very high, or you could be denied altogether. By handling your expenses and liabilities first, you can make sure that your credit score stays high, which can help save you a lot of money in the long run.
Paying yourself first is a good mentality to have and practice to follow. However, there are times when it can be risky to pay yourself first. For example, if you have credit card debt or loan interest debt, it’s probably best to make sure you are handling those debts first before paying yourself. You want to avoid damaging your credit, going further into debt, or having to deal with collections agencies.
Getting started
Overall, paying yourself first is a great way to make sure you are always saving money. There are a few different ways to do it, and the best method for you will depend on your individual circumstances. If you want to start saving more on your own, then give any of the above-mentioned strategies a try. Additionally, if you’re a Canada Life group plan member, you can also contact a health and wealth consultant to discuss your financial goals.