What Does – “Pay Yourself First” – Mean?

 A lot of people have the wrong interpretation of the simple phrase “Pay yourself first”. I’ve asked several people, and these are some of the things I’ve been told.

· After I pay my bills, and purchase the items I need, I then put something in the bank.

· I set aside a dollar a day. I deposit it at the end of the month.

· I have set up automatic monthly deductions from my bank account.

There is an inherent problem with using these methods to save. All too often, there’s never anything left over to save. The best plan is a sure plan.

When does Uncle Sam get paid? When does the State get paid? When does Medicare and Health Insurance get paid? These deductions are made before you receive your check. They don’t wait and neither should you.

Payroll deduction’s is the easiest way to “Pay Yourself First”. Use your company’s payroll deduction plan, if available, and arrange for a fixed amount to be taken out of your paycheck. Your employer will send these funds to an account of your choice before you receive your check.

The deposit choices for the automated payroll deductions are endless. Don’t limit your savings to only a low interest bearing savings account or money market account at your local bank. You can have the monies deposited in various accounts set up for an IRA or college education, assuming you have researched and identified mutual funds that can fulfill those needs.

You will probably have to wait a year before you will be eligible to participate in your company's 401(k) plan.  Each company's rules are different.  Make sure you understand what your company's requirements are.

Having opened the saving account, tell your payroll department to deposit a minimum of 6% of your gross pay directly into that account.  Since we tend to spend our take home pay, having a direct deposit will keep you from spending money not in your pocket and it will start a saving habit early.

Your company may give your FREE MONEY if you contribute to the 401(k) plan.  Your company's 6% minimum contribution requirement  won't be a problem for you, because you started saving early.  Make sure you understand the company's rules. 

This represents basic fundamental information you should know. Learn how to start the saving habit early so you can participate in your company's 401(k) plan the day you are eligible.  Don't miss FREE MONEY because you are spending all of your take home pay.