“Pay yourself first” is advice I’ve read from some financial advisors. What does this mean?
I’ve read some say that you should pay yourself (invest) before paying your bills. In my opinion, this is foolish. If you don’t pay your bills first you’ll end up with all kinds of hassles, fees and penalties.
So my take on “pay yourself first” is that after you’ve paid your bills, don’t consider the rest of your money to be “free money” to be spent immediately. A first strategy is to utilize automatic payroll deductions (assuming you work for someone else) to contribute to a 401k. Money that never hits your bank account is easier to “not miss”, it just silently keeps building and growing.
The next strategy is to invest some money after paying your bills so it’s a habit that every time you earn money you invest some so that your investments are working for you.
Of course a key to investing is that your investments should at least break even with inflation. A good minimum target is to get at least 5% return on your money.
There are a lot of strategies to help with the psychology of saving / investing. When you find something you want to buy, consider putting it on a “wish list” to be considered for purchase at a later date. Often you may find that after something has sat on your wish list for a while you might not desire to purchase it anymore. Try to set a future goal: “I want XYZ, I’ll be good and save some money and buy it in X months” or “I’ll buy it after I have another $500 saved”.
Keep your standard of living well below your income!
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