By Adam Freeland, CFP and Evelyn Ishmael
Special to The Dagger
“People don’t plan to fail. They fail to plan.”
Save money? “Impossible,” you say, with gas and food prices shooting up!
You’re right, money is tight. But have you heard of the “Pay Yourself First” strategy? It’s a way to get control of your finances and start to get ahead.
What is “Pay Yourself First?” Instead of saving what’s left over at the end of the month after paying all your bills, write a check to yourself before you pay phone, cable, electric, etc.
Why “Pay Yourself First?” Because you are important! It forces you to commit upfront to an emergency fund and your retirement.
How to “Pay Yourself First”:
It’s simple and you can do it all yourself.
Enroll in automatic savings, because the more things you put on auto-pilot, the easier it will be and you won’t put off saving. Here’s what you can do:
–Sign up for 401k automatic deductions if your company has a savings plan. (The best way to do this is to take a percentage of your income because when you get a raise or bonus, then the savings will automatically go up, too.) If you’re not sure how much to save, you could start out at 1%, even though 10 to 17 % is optimal. That amount increases your chances of replacing your income once you stop working, according to “Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle,” by Wade Pfau of the National Graduate Institute of Policy Studies.
–Start a rainy day fund at the bank where you deposit your pay, by having a portion of your check automatically deposited into a separate account. This is your emergency fund and should hold at least 3 to 6 months of income to protect your family in case of an accident, disability, health issues, or job loss.
–Open savings accounts with automatic deposits for your intermediate and long-term goals: new car, new house, trip to Disney, 529 college savings, Roth IRA, etc.
When you pay yourself first, you make emergency and retirement savings a top priority. By making the savings automatic, you direct the money to areas that are important to you.
You can classify “save, save, save” as a habit such as losing weight and stopping smoking which prove to be hard, but good for you.
Susan Hirshman, author of “Does This Make My Assets Look Fat: A Woman’s Guide to Finding Financial Empowerment and Success” observed, “I started thinking about the concepts of dieting, and the similarities were astounding to me. It’s about balance, it’s about moderation, it’s about goals.”
“Pay Yourself First” is easy, automatic, and pays off. Start today.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Harford Financial Group and Cambridge are not affiliated.