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“Pay yourself first” is a rather savvy term for a simple financial practice that not enough people make use of. Simply put, it’s the act of setting aside the money you want to contribute to savings goals, investments, and other financial plans as soon as you get paid. But why should you start making use of it and what are the real benefits?
Every time you fail to put aside money for savings or investments, you’re not just losing the money that you don’t put aside. You’re also losing all the potential growth that could come from that money. The longer you wait to start contributing to your retirement or other long-term financial plans, the harder it becomes to meet those goals. You’ll have to pay more in a shorter time, which can lead to real financial strain.
To pay yourself first, you have to create a budget. This budget takes aside all the essential expenses and looks at what you have left, before setting aside a chunk for your savings goals. While you shouldn’t eliminate discretionary spending entirely, this closer look at your budget also helps you get an idea of where you’re wasting money you can better use. You can learn your own bad habits and curb impulse spending as a result.
One of the biggest mistakes people make in their financial planning is failing to invest as soon as they’re able. They would rather wait until they’re earning more. Paying yourself first allows you to find the seed capital you need to grow an investment portfolio. Follow to learn more about how investments can help you grow wealth completely independent of your career. It’s a lot better than letting it sit and stew in a savings account.
The wealth you do currently own also needs protection of its own. Pay yourself first with the goal of raising money you can use to protect your retirement fund. You can purchase insurance as well as putting together an emergency fund. If you don’t have some buffer between life and your expenses, all it takes is one bad day for you to be in financial distress. Medical costs, home repairs, and other unexpected bills can start eating into your most vital savings.
If you’re constantly waiting for raises and promotions to give you the sense of progress you need in life, you may always find yourself wanting. They never come as soon as you would like. Whereas, by paying yourself first, you take a first-hand look at how close you’re getting to your financial goals with every paycheck. That’s one of the most effective ways to stay motivated in your finances.
Simply put, paying yourself first is a way to ensure that you are always making progress in your financial goals. Without making a habit out of it, it’s too easy for the bank accounts to stagnate while you spend money, never building the foothold that can lead to true wealth.