FIRST means FIRST
You should pay yourself first. How can I pay myself first?
Pay Yourself : The Bank Plan
The word first is the important part of the pay yourself first phrase. More than one person has said, If the money hits my bank account it is lost and I spend it, hence the pay yourself first is the way to go here.
First step is open at least two if not more bank accounts (preferably with an institution that does not charge much if any service fees, but that is another story).
Let’s call these accounts: Working Account and Savings First, just to be clear.
You need to now figure out when your pay cheque arrives in your bank account (you’d be surprised how many people I know, that don’t know what day payday is). Let’s assume for this exercise that we get paid bi-weekly on a Tuesday, just to be obtuse (nobody I know gets paid on a Tuesday). You also need to know which bank account your pay cheque gets deposited, we’ll assume the Working Account for this exercise.
Log into your banks on line banking or call your bank’s phone line banking service. If you don’t know how to do either of these, please go find out how this works, it is much easier to do it this way.
What you will do now is set up an bi-weekly money transfer, that happens on Tuesday to moves a set amount of money from your Working account to your Savings First account, it is just that simple.
Simple Plan of Attack
How do you do that? A few ways could be:
- Set up a transfer from Working to Savings First, find the Recurring button, or ask the operator (if you are using the phone) to make this transfer a recurring transfer. Set the date up so that it is every second Tuesday, that lines up with your pay day
- Do the same thing except set up the transfer between accounts as a bill payment (which I know you can do with TD, but not sure about other banks).
- If your employer allows this, simply have the amount you want deposited into your Savings First account and the rest of your money in your Working account (this is even easier). I like this way, since you don’t even need to use the same bank for your Savings First account (hence easier to hide from yourself).
- You can do this with virtual accounts in Quicken, but I don’t really know how this might work (feel free to comment if you do know how it might work).
With this simple act of financial slight of hand you have now hid money away in your Savings First account that you can forget about until you need it.
A Word of Caution
A word of caution, if you don’t fool yourself into forgetting about (or protecting yourself financially from yourself) your Savings First account, you may end up simply raiding the cookie jar (i.e. withdrawing money from your Savings First account) whenever you feel any financial anxiety, instead of forcing yourself to stop spending. You must show a degree of financial intestinal fortitude with this model.
After a period of time you will have built up a significant amount of savings,if, you put more than a token amount in your Savings First account, and you manage to keep from taking funds from this account for non-essential reasons.
I have used this method to set up an automatic savings set up to put my Property Tax, House Insurance, and Car Insurance money aside for their yearly payment, so this method does work.