Are you a financial hermit? You know, the alternative to being labeled as cheap or frugal – someone who avoids socializing, going out, or engaging in activities that involve spending money. While maintaining such financial discipline requires hard work and dedication, it can also be draining and unsustainable. Instead of embracing financial hermitage, consider more efficient ways to achieve financial security. One such strategy is paying yourself first, a timeless principle we consistently emphasize on this blog. This approach is crucial in the realm of finance and can make all the difference between financial independence and financial struggle. To pay yourself is to simply make sure that you are deducting a percentage of your income – preferably through an automated means – so the money goes to a savings or investment account before you see it or have had a chance to toy around with it.
We have already discussed and extensively covered the topic of paying yourself first and why it is so vital in personal finance and achieving financial freedom. For one, it reduces stress of having to watch your money and not spending it all, while on the other hand it helps avoid impulsive spending and maintain financial discipline.
Strategies for Paying Yourself First:
One of the first things to do when it comes to paying yourself first is to automate your savings, setting up retirement accounts, and creating a budget. Those 3 steps, once done, will put you in cruise control, not having to worry after that. When it comes to automating and simplifying things, it is important to keep this consistent and ensuring savings is a non-negotiable part of your financial routine. Talk to your employer to set up automatic payroll deduction, this way you never even see this money as it goes straight to a savings or investment account. Speaking of which, a lot of employers offer matching programs, where they pay a certain amount based on what you contribute. As they say, never leave any money on the table. This is essentially free money that you don’t want to miss on.
Overcoming Temptations and Impulse Spending:
In the midst of relentless advertising and promotions, it’s easy to fall into the trap of overspending. That’s why it’s more important than ever to automate and prioritize your savings. However, prioritizing savings doesn’t equate to giving yourself license to spend the remainder of your money without a plan. Instead, it alleviates the guilt associated with spending all your income without saving any of it. By practicing mindfulness, creating a spending plan, and setting financial goals, you can fortify yourself against the allure of retail temptations and ensure that your financial decisions are guided by intention rather than impulse.
How I automate multiple ‘PYF’ systems at once
I have personally been prioritizing paying myself first for close to two decades now, and it has become a non-negotiable aspect of my personal finance and budgeting strategies. In fact, I have established multiple systems to ensure that I prioritize savings: primarily through payroll deductions, with my employer matching contributions up to a certain amount each year. Additionally, I participate in an RRSP retirement plan deduction, also facilitated by my employer. Another avenue for savings is a pension plan offered by my employer, with matching contributions up to a certain limit. Lastly, I have a fourth account dedicated to investments, although this one is not set up through payroll deduction. Instead, a small amount is automatically deducted from my bank account on the same day I receive my paycheck. That is four separate systems to ensure I am getting paid first, before having had the chance to spend a single penny. And despite all of this, I still watch my money to ensure they are being used properly and efficiently. This is far from being frugal, but simply to ensure that the money I work so hard for, are also working hard for me and are not being squandered.
You don’t have to live like a hermit, where you avoid seeing the outside world, just to avoid being tempted to spend. That is neither fun not sustainable. Instead, seek to simplify your finances, where you are saving a portion of your income before you do anything else with your money. Better yet, don’t just set an automated payroll savings program, take it a step further and put it into an investment account where the potential for growing your money overtime is better than simply putting it into a savings account that may not help it compound as fast.