Do you have any habits? Maybe some are less desirable than others. Nail biter? Pen chewer? These things just automatically occur without you thinking about it, right? Unfortunately, saving money is not a natural habit. Saving money is one of those things that is “easier said than done.” It is easy to say that you will save money every month… but the end of the month comes around and there’s no money left to save. This is a common problem. That is why it is important to make yourself develop a habit when it comes to saving money. The most effective saving habit is known as “pay yourself first.”
Pay yourself first means to set aside a predetermined amount of money for saving every time you are paid before using any of that money for spending. For example, when Danny deposits his paycheck every month, he puts $200 into his savings account and the rest into his checking account. The money in his checking account is used to pay his monthly expenses. The money in his savings account remains there until he needs to use it to pay for an unexpected expense.
That’s how easy paying yourself first is! A good place to begin is to think of savings as a fixed expense (just like rent – it can’t be adjusted or ignored) and add it to your spending plan as an expense. However, like in Danny’s case, it still takes personal willpower to actually move the money into savings! So, what if paying yourself first occurred automatically without you having to do anything? It would be even more effective. Automatic transfers and payroll deductions are two methods that allow you to pay yourself first and make saving money completely automatic:
- Automatic transfers – Most depository institutions allow you to automatically transfer a set amount of money from one account to another account. So, you could set up an automatic transfer to move money from your checking account (where your paycheck is deposited) to your savings account (where you store your emergency savings fund). You can even choose the day when this transfer will occur. The day you’re paid is a good day to choose, so there is never any temptation to spend that money!
- Payroll deductions – Many employers will automatically deduct a set percentage or amount of money from your paycheck and deposit it into a depository institution account of your choice.
Overall, to help yourself choose to save money over spend money, remember the following:
- Think about your future
- Expect the unexpected expenses
- Remember the price of procrastination when it comes to saving money – you want to earn interest!
- Develop a smart savings habit
- Remind yourself that saving money is the key to developing financial security -consumerjungle.org
