What ‘Pay Yourself First’ Looks Like When You Can’t Save Much
Financial experts far and wide insist on the “pay yourself first” method. What that means: When you get your paycheck, be it for a salaried job, freelance work or a side hustle, you don’t spend a penny on anything before moving some of that income into savings or investments.
The "pay yourself first" method works because it makes savings and investment a top priority, rather than something to check off your list after you handle all other expenses. Now, you may feel like you can’t do this if you’re forced to adhere to a pretty frugal budget, but you can and you should.
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Financial experts shared what "pay yourself first" looks like when you can’t save much and how to get started.
Get a Clear Picture of How Much You Can Save
First things first: Get totally clued in on how much you can realistically save. Even if it’s $15 a month, it’s something, and it counts – especially if you put it in an account where it will generate interest over time. Half of determining how much you save is knowing exactly how much you make.
“Having a clear picture of annual income creates a better sense of organization, making it easier to identify how much money can be put aside for savings,” said Jason Fannon, certified financial planner (CFP) and senior partner at Cornerstone Financial Services.
Know Everything You're Spending On
The other half of determining how much you save is to make an itemized list of every single penny you part with on a monthly basis. Be on the lookout for expenses you can cut.
“Another essential piece of knowledge is personal/household discretionary expenses, this is mandatory for predicting annual savings,” Fannon said. “Tracking the income and expenses of your cash flow will allow you to create an accurate savings target and see where small adjustments can be made to increase room for savings and financial flexibility.”
Know the Various Ways You Can Pay Yourself First
No matter your savings bandwidth, it’s crucial to understand the various styles you can use to pay yourself first so that you can pick which works best for you. Choose the path that will be the easiest for you to stick to.
“Paying yourself first can be done through direct deposit splits on a paycheck or automatic transfers/contributions into a savings or retirement account,” Fannon said. “Over time, this budgeting technique will create healthy habits and allow compound growth with consistent deposits.”
Don’t Aim To Oversave
The concept of “oversaving” may sound like an oxymoron, but in situations like this, it’s a real threat. You don’t want to prioritize saving money to the extent that you risk depriving yourself or your family of essentials. Savings are meant to create strength, not suffering.
“Feeling comfortable with your financial situation is as important as calculating how much money you have and how much you need,” said Cody Schuiteboer, president and CEO of Best Interest Financial. “The easiest way not to break your plans is to keep the amounts you automate low enough to feel no fear of losing food and a place to live. If you are afraid of something you tend to postpone it forever, so the key to success is comfort and ease of execution.”
Focus Not on Amount but on Consistency
Your focus needs to be not on how much you can save but on doing it consistently.
“Financial progress is not all or nothing and investing small amounts of money can create discipline that allows money to grow over time,” Fannon said. “As income grows through career advancements, the healthy financial habits that were built early make it easier to save and build financial stability.”
Expect Financial Anxiety To Lessen — Yay!
Avoid judging yourself or your life for not being able to save more money. Be proud that you’re slowly but surely building financial stability. And keep in mind that as you keep doing this, you’ll likely feel more confident and less stressed about money.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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