- Many people have been forced by the global pandemic to rethink their views and approaches towards managing and acquiring money.
- To first-time investors, a common piece of advice is to “pay yourself first” as a guide to money management.
- Studies show that only about one-third of Americans plan a detailed budget which tells you what comes in as income and what goes out as expenses at a basic level.
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Many people have been forced by the global pandemic to rethink their views and approaches towards managing and acquiring money.
Whether based on fear, curiosity, or opportunity, people turn to different types of investments as a means of offsetting the negative effects of the global health crisis.
To first-time investors, a common piece of advice is to “pay yourself first” as a guide to money management. Yet if it’s common wisdom, why aren’t more people doing it?
Here are five excuses people are using as to why they don’t pay themselves first—and what you can do to fix them.
“I don’t make enough money”
The number one excuse people give to the idea of paying themselves first is that someone is not making enough money. There is a truth to that, but that’s just not accurate in many cases—people aren’t aware of it because they don’t create and follow a budget.
Studies show that only about one-third of Americans plan a detailed budget which tells you what comes in as income and what goes out as expenses at a basic level.
Without this tool in place, it’s easy to lose sight of spending habits that aren’t conducive to your ideal saving and investment plan.
The good news is that fixing is pretty simple—set up a budget. Keep it as brief or as detailed as you like, as long as you have a reasonable understanding of what your monthly expenses are in comparison to your monthly income. Maybe there’s an opportunity to remove some of the expenses you ‘re paying but have forgotten, or to limit expenses you ‘re overspending on. Whatever direction you take, a budget represents a solid starting point.
“I simply don’t know how”
Though it sounds straightforward enough, paying yourself first can sometimes become a complicated endeavor. How much should you set aside? Is there an ideal percentage? Where should I put the money I’m setting aside? What do you do with the money once it’s saved?
The answer is just to start small and build from there. If you have a fixed income, set a pay period and a fixed amount that you want to save up and set it aside. With a fluctuating income, you might assess how much you earn on average and start from there.
This is where having a clear understanding of your income and expenses through budgeting can help out.
“It doesn’t matter if I pay myself first or last”
What difference does it make if you pay yourself first or last? As long as you’re saving, it shouldn’t matter when you save, right?
Unfortunately, this notion is not true.
It’s much better to spend what’s left after saving rather than setting aside what’s left after spending. Paying yourself last signals to your brain that maintaining discipline is not a priority, and you are apt to keep following this broken pattern.
On the other hand, when you choose to pay yourself first, you are demonstrating that your greatest financial priority is your future.
“I find it hard to find the discipline to pay myself first”
A significant part of your financial success depends on doing things that take time and at least aren’t fun. Personal financial management can be boring between budgeting, saving, and investing.
Luckily, there are plenty of tools available that can help relieve some of the budgeting stress. However, automating your savings is a great place to start.
The best way to get started is to open a savings account that lets you set aside a certain amount or percentage on a separate account. This helps you automate your savings without you doing any work.
This will also eliminate any excuses for you to miss or forget about paying yourself first.
“I don’t have to pay myself first”
When you’re making so much money, there’s always some leftover. You do not have to worry about budgeting, saving, or investing.
That is until you’re faced with a layoff or a black swan event like the coronavirus pandemic. Things like this will happen, so planning for an uncertain future is better than winging it, hoping that nothing bad ever happens.
High-income earners are better positioned to stick to a budget, pay themselves first, and invest. Take advantage!