Learn to pay yourself first
As we all know, each month comes with more bills to pay. You pay your mortgage lender. You pay the electric company. You pay your credit card. You might even pay down your student loans. Now think, do you pay yourself?
Before you pay any of your bills, make your first payment be a deposit into your savings account. “Paying” yourself first is one of the best habits you can get into, as the savings patterns of the average American vary widely. The average personal savings rate in the United States is 8.9%, though the record lows have reached 2.2% and the highs have reached 33.8% during the COVID-19 pandemic.1 Being on the higher end of these statistics allows you to be properly equipped to deal with life's mishaps and surprises.
The advantage of paying yourself first
With so many bills and obligations, saving can be a challenge. Month after month, year after year, there seems to be a near endless array of expenses that beg for a portion of your monthly income. This is where the advantage comes into play: you get to make sure you’re on track for your savings and retirement goals while still paying your bills.
This might sound like a gimmick, but it isn’t. The secret lies in prioritizing your budget and making a point to put your future first. If you wait to “pay” yourself after you’ve paid off your bills, you will be more likely to see it as leftover money you can spend. “Paying” yourself first, however, will make you prioritize your monthly spending and secure your future wealth.
Making your money work for you
It’s time to decide what you want to do with the money you save.
As far as retirement goes, you should consider taking advantage of tax-advantaged investments. Your employer’s 401k plan is a prime example of a tax-advantaged investment. Allocating money to a 401k is also effortless on your part, since the money comes directly out of your paycheck. To make it even better, most employers offer to match a certain percentage of your contributions. Check with your employer to set up a 401k and start saving today!
If you want to prioritize having access to your money before retirement, consider placing your funds in a separate account. That way you can move money into more lucrative investments as opportunities come up. Though as always, it’s best to consult with a professional and understand your own risk tolerance, time horizon, and long-term goals.