These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
With most Canadians having less than one month’s living expenses set aside to weather financial storms such as job loss, sickness, accident, etc, one of the biggest challenges is how to build a financial nest egg. The concept of ‘Paying Yourself First’ is fundamental to any savings or investment plan. While yesterday’s tip talked about allocation amounts – the 70/20/10 strategy, Paying Yourself First is how to build the 20/10 portion of these plans. It is helpful, regardless of where you are in life.
Paying Yourself First helps establish solid savings foundations whether just starting out in life, later in life, whether you’ve build some savings or whether you have no savings. It’s never too late to start. Paying Yourself First is not ‘what do I do with the money that’s left over at the end of the month’ . It’s not saving/investing what you have left over after paying your bills. Relying on lines of credit and loans are not cost-effective means of weathering financial storms.
Paying Yourself First is prioritizing setting monies aside at the start of the month before any other expenses are paid. At minimum it should be 10% of your net/take home pay and ideally more (see 70/20/10 concept). Paying Yourself First can be accomplished by establishing automatic transfers from a daily expense/payroll account to a designated savings account at your bank/credit union. These transfers can be done monthly, weekly or bi-weekly in most cases. Many employers also have the ability to establish payroll savings deduction plans so these monies are set aside before being credited to your bank account. Think of Paying Yourself First as being your own personal bank.
The nature of what the monies should be invested in will be covered in future Daily Financial Tips and will vary from person to person, depending on family circumstances and priorities. The key to a successful Pay Yourself First program is setting savings monies aside before anything else is paid. You’ll be surprised how quickly these monies will accumulate to weather financial storms. A book that helps provide more detail in easy to understand language is David Chilton’s – The Wealthy Barber, as well as many online websites. Keep coming back here for more daily tips and ideas and share with your friends.