Pay Yourself First

Every time you order chicken breast and roasted vegetables instead of lasagna, you are making a healthy choice that, if you are consistent, will pay dividends to your future self.

Every time you decide to go to the gym, even though you are tired and would prefer to spend the time with Netflix and your couch, you are taking a step toward a healthier future.

But ask yourself this:  Are you taking steps to be sure your financial future is healthy?  

If the answer is no, the most important thing you can do -- consistently -- is very simple.  Pay yourself first.

When you work up your budget, the category at the top of the list should be SAVINGS.  This includes 401k and/or IRA if it is not automatically taken out of your check, an emergency fund savings account, an investment account, and a traditional savings account.

Paying yourself can easily be done by a direct deposit that you set up with your bank.  If the money goes out of your check and into savings automatically, you won't see the money, you will learn to live on the balance of our paycheck and you will be financially able to handle unexpected expenses that happen to all of us.  You will also be setting your future, retired self up for a comfortable life without having to worry about when your next social security check will arrive.

Let's take a look at each category:

401k/IRA - It is critical to be good to your future self by saving for retirement while you are in your early and peak earning years.  If you start early, the money you put away has decades to compound.  Most employers will match a certain percentage of the money you save.  Don't leave this free money on the table!  

Emergency Fund - Put money aside in an emergency fund for the unexpected -- your roof springs a leak, your hot water heater dies, you need expensive dental work.  Without an emergency fund, many people put these expenses on their credit cards and wind up paying that debt down for years.  In addition, a longer term goal is to save at least 3 months of living expenses in the emergency fund in case you lose your job and your income is interrupted.

Savings Account - This is for expected expenses that may not be included in your monthly budget.  For example, your twice yearly car insurance payment, saving for a vacation or for a new car. 

Investment Account - Watch your money grow when you invest in mutual funds and bonds.  It is simple to set up an investment account with a brokerage house like Vanguard or Fidelity, and if you deposit even a small amount each paycheck, you will see your money grow over time.  The stock market offers a potentially higher return on your money than a savings account and will help you keep up with inflation.