Now that I am on the other side of 50 I truly understand the importance of the phrase "pay yourself first ." I look forward to the next phase of my life, that of a retiree. I often think about when I will be able to make it happen. I am in my early 50’s, but starting to look forward to the time when I can fill my day with only those things that I immensely enjoy. But will I have enough money to retire? That is a looming question. I recently read that I will need 11X my annual income, in savings, to retire comfortably at 65 and maintain my current lifestyle. I still have time to save, and I feel good that I am on the right track.
The concept of paying yourself first is a simple one. As part of your monthly budget pay yourself first by allocating money to your personal savings account and a long-term investment account sponsored by your employer, like a 401k or 403B, or an Individual Retirement Account (IRA). The concept is simple, but often because of other demands in life, this discipline can be tricky. Paying yourself first is your bridge to retirement and having money for a rainy day. Some will be lucky and have pension assets to fund their retirement years. I am not in that camp. Studies show that that Social Security benefits will not be enough to support a comfortable lifestyle and that personal savings will be needed to bridge the gap. Do you want to retire someday? I do!
Contributing to your employer-sponsor long-term savings plan (401K or 403B) is one of the easiest ways to pay yourself first. These plans have the additional benefit being tax-deferred (you do not pay taxes until the money is withdrawn), your contribution is made with pre-tax dollars, thus lowering your current taxable income, and a percentage of your contribution is often matched by your employer (don’t leave free money on the table). Because your contribution is deducted from your paycheck first, you learn to budget your lifestyle with the remainder.
When paying your bills monthly, pay yourself first by allocating some money to a savings account. Beyond long-term savings for retirement, we all need money that can be easily accessed. Why? Because sh#%t happens. It never fails not to happen. In my life sh#%t happens monthly! There is always an unexpected expense. Treat your savings account just like you treat any other bill that you pay monthly, you are simply paying yourself first.
Empower yourself by paying yourself first.