Pay Yourself First

Reaching long-term goals like saving for retirement, establishing an emergency fund or buying a house can seem daunting when you’re looking at your monthly budget. It can often feel like your hard-earned money is quickly spent on expenses such as rent and a myriad of monthly bills. How can you get ahead when you feel constantly behind?

However, you can put a little something aside each month to fund your priorities and afford your expenses. All it takes is a little number crunching, some commitment and discipline. By altering the way you save and spend by putting a little bit of money into savings each month before you pay expenses, you can set yourself up for long-term savings success.

1. Set Some Goals

To start saving, it helps to have clear goals that can motivate you throughout the process. Whether you want to start saving for retirement by contributing to a 401(k) or 403(b) account, increase your contributions to a pre-existing retirement account, start an emergency or vacation savings fund, or save toward a major purchase like a house or car, you will need to keep your eyes on the long-term prize. Also consider how long term your goals are. You might save differently for a purchase you’d like to make next year versus one that is several years from now.

2. Know What’s Coming In

To set realistic goals, you need to know where you are starting. If you have a set monthly income, this can be easy; if you have variations in your monthly take-home income, this can be a bit challenging. If you’re a 1099 employee, a tipped worker, or a freelancer, take an average of your monthly income from the past six months and use this number to start with, or if you’re feeling conservative, pick a number slightly less than average to make sure you’ll hit your target most months.

3. Know What’s Going Out

Before you start to pay yourself first, you need to know what resources you have to be able to pay yourself. Tally up your monthly bills. What’s left is the money that would typically be used for optional expenses. If your monthly expenses seem high, think about some ways to lower your monthly payments; i.e., cut the cord from cable, reconsider your gym membership, or negotiate with your credit card company for a lower interest rate.

4. Decide How Much to Pay Yourself

Depending on your savings priorities, this number could be a very high percentage of your income or a number that is more moderate. If you have one large goal or several smaller ones, you may want to consider paying yourself as much as you can afford each month. How do you determine that number? Take your monthly income and subtract your expenses and you’ll see how much you have left. From there, figure out the amount that would be reasonable to set aside and allocate the amount to your various savings goals.

5. Save Your Money Smarter

If you’re saving for retirement, one vehicle for your money would be an employer-sponsored plan such as a 401(k) or 403(b) plan. However, if you’re saving for a large purchase like a down payment for a house, a traditional savings account might not be the best place for your money. Instead, look into an investment account where your money can grow faster. Talk to a Financial Advisor to weigh your options and find out what type of account would be best suited for your needs.

6. Put It Away and Keep It Away

Paying yourself first is a great way to save for future spending priorities…if you actually pay yourself first. Set the money aside, put it into your account, and then don’t touch it until you need it. If you’re constantly taking money from your account, maybe you should reconsider the amount you’re putting in.

7. Think of Your Future Self

It can be hard to keep your eyes on the prize in terms of saving. Often, instant gratification or short-term rewards take precedence over long-term goals in the far future. If you’re having trouble motivating yourself to save, think of your future self as a real person. As difficult as it might be to envision a 66-year-old version of yourself, consider that person—your future self—and their needs, wants, and goals. Does your future self have ample savings? Are they traveling in retirement? Where do they live? Think about your future self every time you make a major decision to save or spend.

Paying yourself first—the act of putting money aside for yourself before paying your mandatory monthly expenses—might seem challenging. If, however, you commit to putting away a little bit every month and invest it wisely, your future self and your future goals will reap the rewards.