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Did anyone ever hear the term, ‘Pay Yourself First’? It is essential to learn this term for anyone that wants to better their financial life. For income that I receive, I have several automatic deductions that take place before I even get to see the remainder of my income amount.
One of my auto deposits is set up to contribute monies to my company sponsored 401K retirement account . This can be the most important deduction taken out of your pay check because you can make a contribution using tax free dollars.
Another auto deposit that I have set up is a weekly amount that goes into my Robo Advisor account that I have with Betterment . This amount gets deducted from my checking account. I chose to contribute weekly to maximize the dollar cost average strategy. But you can also contribute a monthly amount instead.
My last auto deposit goes into my Online Savings Bank which yields a much higher interest rate than my checking account, as I have mentioned in my previous post . And whatever amount is leftover gets funneled down to my checking account to cover my monthly expenses.
This is a great way to discipline your financial mind because money you don’t see means you won’t feel it and you won’t miss it. You will need to adjust your auto deposit dollar amounts as your income changes.
My monthly expenses includes my mortgage, common charges, property taxes, credit card bill, utility bill, food, cable TV/internet, cell phone bill and a small amount for miscellaneous stuff. All of these expenses also get deducted automatically because I have a feature called ‘Auto Pay’ set up with my checking account.
Auto Pay is a great service that most banks offer to their customers and it’s usually for free. You basically login to your account, create the company/person you are sending a payment to, set the dollar amount and the payment date. You can set this amount to reoccur monthly. So no more paying for postage stamps to mail out your monthly bills. That alone is a huge savings.
It’s very important that when you select a Payment Date, you verify the recipient will receive the payment on that specified date OR they receive it few days later. My bank displays the date where the recipient will actually receive my payment. I know some people who have gotten hit with a late pay penalty fee because the Payment Date was the date that the payment was actually mailed out, NOT the date received by the recipient. So just verify with your bank what their Pay Date actually represents if it is not clearly stated.
For my cable TV/Internet and cell phone bills, I have those companies charge my credit card automatically so I can reap the benefits of my card (this will be covered in a later post). Most bills like my mortgage do not accept payment via a credit card and my utility company charges a fee. If a company charges a fee for paying with a CC, just pay via your checking account. I don’t think it’s worth paying the fee.
I also have my credit card bill automatically deducted from my checking account monthly, so I don’t have to worry about that bill either.
Money that is invested/compounding and earning a much better interest rate is money that is working hard for you. I like to think that every single dollar is my employee that is working hard for me. And all my monthly expenses are paid automatically and on time. This is detrimental to your credit score (I will cover in a later post).
It is very important that you create a budget for yourself (I will cover budgets in a later post) and carefully calculate how much you need leftover from your income and after you pay yourself in order to pay your monthly bills.
Basically my income and expenses are taken care of automatically. I don’t need to worry if I am forgetting to pay a bill and I know my money is working hard for me in my retirement, investment and online savings accounts. Not to mention that all your money that comes in and goes out every month is now highly organized and is much more efficient.
Now you can see how I allocate as much money as possible to work hard for me every month by using Auto Deposit. And that is how you ‘Pay Yourself First’ automatically.