Everyone knows savings are important to have. Unfortunately, what you know and what you do aren’t always in alignment.
The month starts with good intentions, but after paying your bills, filling up your car, and going out for dinner, you can lose sight of your big goals. By the end of the month, you’ve used up all your cash and saved nothing.
Does this sound familiar? You can fix this issue by following the Pay Yourself First rule.
What is the Pay Yourself Rule?
Paying yourself first is exactly what it sounds like. Pay into your savings account before you do anything else. Before you pay rent. Before you buy groceries. And definitely before you pay your Netflix subscription.
Why is this order important? By saving money right off the bat, it’s impossible to put off saving until it’s too late and you’ve spent all your expendable cash.
When your savings come out of your account right away, it forces you to balance your budget with the money that remains.
Why Do Savings Take Priority?
Life without savings can be challenging. Sure, you might be able to pay your bills on time, but you can get into trouble if an unexpected expense comes your way. You’ll have no reserves to handle this extra spending you didn’t anticipate.
If you’re dealing with that situation right now, don’t panic. You can look into getting an installment loan for assistance.
Not sure what kind of installment loan you need? Financial institution MoneyKey lists four popular installment loans, making it easy to compare the basics between these options.
This simple review can act as a springboard for the rest of your search for an online loan that suits your emergency — whether it’s a personal installment loan to cover unexpected repairs to your vehicle or an auto loan to purchase a used car.
Emergencies come in all shapes and sizes, and knowing which installment fits yours can help you hunt down reasonable rates and terms.
How Much Should You Pay Yourself?
The answer to this question depends on a lot of factors, including your income and risk tolerance.
Common advice says you need three to six months’ worth of living expenses in an emergency fund. This amount will provide ample security in case you run into a lot of unexpected expenses.
A hefty target can be daunting when you think about it all at once. But you don’t create an emergency fund in one go — it’s something you build over time.
Aim for as much as you feel comfortable saving. Saving anything is better than nothing. The important thing is picking a goal that you can hit consistently.
How Do You Balance Your Budget Following This Rule?
Paying yourself first will rearrange your spending plan. Your budget will look entirely different once you start contributing to your savings.
Naturally, you’ll have less money to work with after saving, so you’ll have to think about which expenses you have to cut to stay within your budget.
This usually winds up being unnecessary splurges or fun spending. The average American spends roughly $18,000 per year on non-essentials, including the following:
- Nights out
- Multiple streaming services
- Subscription boxes
- Gym memberships
- Extra clothes or beauty products
Reducing how much you spend on these expenses can help you balance your budget after you prioritize savings. Sit down with your budget to find out which expenses you can keep, and which ones need to go.
This change in your spending habits might take some getting used to, but your financial security is worth it. Try out the Pay Yourself First rule to prioritize your savings.