The concept is not a new one, but it is one I have recently reintroduced into my saving repertoire. The idea is that when you get a paycheck; before you pay for groceries, before you pay your rent or mortgage, before you pay your light bill, you designate an amount to go directly to your savings.
The key to this method is that by paying yourself first you will never miss the amount that you squirrel away since it was never in your checking to begin with. In order for this to work you must move the money directly into savings before you can ever lay a hot little hand on it. Often if we don’t move this money into the savings account right away, we will find a reason to spend it. Also, you must leave it alone. This money is meant to build up over time so it must be all but forgotten about.
The best practice in achieving the pay yourself first system is to set up a sister savings account through your local credit union or bank where you can have your paycheck direct deposited. Within this bank you can designate a portion of it to be rerouted to go into a savings account.
For me, I have local credit union separate from my regular banking. So a portion of my paycheck goes straight into this savings account before I ever see it. The amount you save doesn’t matter, of course the more the better but if you can only spare $20 then start there. It still adds up over time.
It is also helpful to have a savings goal in mind to keep you motivated to continue saving rather then pulling your money out of the account too soon. I have heard other people will set up multiple savings account and use this method to save towards different goals. This may be helpful if you have a lot of large expenses coming up and need to sock away cash.
For example most credit unions will offer a Christmas Club savings account that you can use to save throughout the year towards holiday purchases. Then in mid-November the amount saved is automatically moved to your regular savings or checking account to be used as you see fit.
But be warned it is just as easy spend once the amount is moved into your checking. If you take the money out be sure to have a specific plan for it or you will end up back where you started with no savings to speak of.
This method of saving is painless and surprisingly easy. Also having the savings in reserve will keep you from reaching for your credit card for those big ticket expenses.