One of the best pieces of personal finance advice I’ve ever gotten was: Pay Yourself First.
Like so many general personal finance rules, it’s super easy to fight against this idea. Shouldn’t you pay off debts first? Shouldn’t you pay off your credit card balance?
You can take this rule to the extreme and always fund your retirement/savings/goal accounts first no matter what and your outcomes may still be pretty bad a$$. Or you might find that’s the stupidest idea on earth for you and you wind up debt laden and bankrupt.
Common sense comes into play here hardcore. You need a set budget and a plan to make paying yourself first work.
So step one of rocking the pay yourself first method – create a realistic budget. Crunch the numbers and see how much you have to set aside for essentials like rent, utilities, debt payments, mortgage, etc.
Then set your numbers. The numbers you need to know to pay yourself first. The amount you plan to contribute to your IRA each month, the amount you can afford to set away into an emergency fund, the amount earmarked for your kids college educations or to buy your next car with cash.
These are your pay yourself first numbers.
When your paycheck hits the bank, the first thing you do it transfer those amounts out to difference holding accounts. The money isn’t there to tempt you anymore. The easiest way to wind up short on funds for your own long term goals is to leave extra cash in your account – it will always seem like you have plenty and things like eating out or hitting the mall for a new outfit will seem totally doable when in reality, that money was earmarked to make the future a lot easier.