Why This One Savings Tip Will Transform the Way You Spend Your Money

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When you get paid, do you pay bills first or add money to your savings? Read on to learn how to prioritize your savings goals. 

If you have big financial goals (such as saving for retirement, buying a home, or paying for your kids’ education), it’s important to prioritize them if you want to have any hope of actually achieving them. It’s also worth creating an emergency fund, to give yourself a pool of cash savings for unplanned bills and surprise expenses.

Unfortunately, that’s sometimes easier said than done, especially if you don’t earn a high salary and most of your paycheck is eaten up by bills and other expenses. By the time all is said and done and you’ve paid your creditors, you might be left with precious little left in your checking account to actually save. What’s the solution? Paying yourself first.

Wait, what? How do you pay yourself first?

When you get paid, make your savings deduction your first move. Many people get paid on a regular basis and in predictable amounts — at least, if you’re a salaried employee and not a freelancer or small business owner. If you don’t get paid as predictably, you can still pay yourself first. I do this every time I get paid as a freelancer.

For example, I know I have to put aside a certain percentage of my earnings to cover freelance quarterly estimated taxes, and I also have a dollar amount that I take out to meet my own savings goals (currently, saving to buy a house and cover expenses for an upcoming vacation). I treat these costs as bills and transfer the money to cover them right to my savings account every time I get paid, BEFORE I pay anything else.

If you treat saving money as an afterthought, you might be more inclined to just wait until the end of the month and set aside whatever’s left in your account after all your bills and other expenses are paid. But what if there isn’t anything left? You might not save any money at all. So what happens to your goals? They don’t get funded.

Automating your savings can help

I really enjoy making those transfers from checking to savings, and I don’t mind doing it manually — which is one reason I haven’t automated my savings for taxes and buying a home. But automating savings and retirement account contributions is really helpful for a lot of people.

You can set up an automatic transfer of cash from your checking account to your savings; it’s likely an option in your online banking portal or even your bank’s mobile app. The bank I keep my main checking account with allows account holders to set up transfers to another account once a week or once a month (among other options), for example.

Your bank likely has similar options, and you might be able to select a specific day that your savings contribution will be transferred. If you get paid on the 1st and 15th of every month, setting up transfers for those specific days will ensure your goals get funded, and you can’t accidentally spend the money before it leaves your account.

You can likely set up the same kind of transfer from your checking account to an IRA. If you’re eligible to join a 401(k) plan at work, those contributions can also be made directly from your paychecks to the account.

If you struggle to save money for emergencies and future goals, consider paying yourself first (and automating the transfer from checking to savings or a retirement account can help). Waiting until all your bills and other expenses are paid could leave you with little or nothing left to save.

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