Bills, Bills, Bills… We all have them and we all pay them. I am by no means telling you to not pay your bills; however, I am telling you that you have to set aside a portion of your monthly income to go towards savings for something that will help you obtain passive income and ultimately savings for emergency/retirement. This is called paying yourself first.
It’s no secret that Americans struggle with saving for retirement. With those constant Facebook newsfeed updates of people going on their dream vacations or posts about people showing off their brand new Mercedes, fear of missing out on fun times with friends at the new club with the expensive craft drinks, it makes it difficult to say no to purchases that provide instant gratification. If you pay your self first and have money left after paying the bills, then by all means enjoy that craft drink or put that extra money toward your vacation fund.
I struggle with FOMO as well…I often dream of swapping my 5-year-old car for a brand-new Mercedes. But what keeps me from getting in my Honda and driving straight to the Mercedes dealership is remembering that material objects will not make you happier, and studies prove this.
So how do you pay yourself first?
As soon as you get paid, you need to designate a fixed amount (preferably 35% of your net pay) that gets transferred to another account (ie – savings, brokerage or retirement account) before you pay your bills.
And when I say before you pay your bills, I mean ALL of your bills: before your rent/mortgage, before your cell phone bill, before your credit card bill. Before ANY dollar leaves your account, you need to make this transfer out. Automate this process if you can, most banking institutions offer automatic transfer services for free.
Once you get into this habit, you’ll find that your spending habits will conform to what is left over (if not, stop spending money on your credit card and stick with a debit card).
Although this may be hard at first, think about if you lost your job and suddenly all the paychecks disappeared. Would that Mercedes provide you any satisfaction then? Absolutely not, and I’d bet that it would actually be a big source of stress trying to make payments with no income.
Mostly I just want you to get as excited if not more excited about saving as you do about spending. My girlfriend said something to me the other day that stuck in my mind. She said, “you know I used to get so excited with the thrill of shopping, and while I still enjoy clothes and makeup, it’s seeing my savings account balance go up that truly excites me.”
Learn to delay instant gratification that you get from spending. By paying yourself first, although you may not receive the instant gratification, you will get extreme pleasure long-term.
Every time I think of trading in my Honda for that brand new Mercedes, I think of my long-term goal of owning a property which of course I already have my eye on.