Why Pay Yourself First?

Planning & Saving
on June 27, 2013

Many Americans are reaching retirement age each day. Some have done well and saved a great deal of money over their working lives. Barring serious long-term illness, these retirees should be able to enjoy their golden years with few worries. The vast majority of retirees will not have it quite so good. They will be forced to juggle funds to meet monthly bills because they did not adequately prepare for the day that they would leave the workforce.

The best way to prepare for retirement is by saving money. Any amount that is compounded over many years will help, but those who are really systematic in their savings plan will likely have more money when it comes to retire. They will also have funds to pay for emergencies that might arise in their day-to-day lives. One of the best pieces of advice that can help people who need to accumulate funds is noted in just three simple words: Pay yourself first.

People who are systematic about saving money and are able to accumulate a nice nest egg tend to treat their savings account or IRA as a monthly bill. Buying a house is a goal that most Americans have. They will usually pay a mortgage company or bank systematically for 15 to 30 years to make their dream a reality. Those who like to keep electricity and running water will likewise make that monthly payment a priority. Many people do not make such a priority of paying into their retirement.

The best way to pay oneself first is by treating the primary savings vehicle, be it a savings account, an IRA or a CD, as a monthly bill. Not only should savings be a monthly bill, it should show up at the top of the expenses side of the ledger on a budget. This systematic savings plan will sometimes lead to some creativity in cutting other expenses should the rest of the budget not balance. Saving money should be the top priority.

Those who do not prioritize their savings will usually not get around to saving for retirement. They are much more likely to use their money on other items that will not improve their quality of life much now, and they will also cut down on their future quality of life at the same time. Therefore, paying into savings as it was a bill should be the top priority of Americans.

%d bloggers like this: