So, the other day I was asked the following question:
"What savings and/or investment strategy have you applied that has been the most successful?"
My answer came fast: Pay Yourself First
There are three steps to make Pay Yourself First (PYF) work.
Step 1 is to create a budget to prove what surplus cash COULD be available at the end of the month. For me, this budget is reasonable but should also favor semi-aggressive savings. This is why I don’t like super itemized budgets that cover such things as wrapping paper costs each month. While I am a control freak and generally like lots of detail, I can’t handle that level of budgetary detail in my finances.
Step 2, once a budget has been created and you know how much money you should have at the end of the month this amount is set up as an auto-draft at the beginning of the month. Again, personalities play a big part in the success of a specific type of financial practice. For example, I don’t like moving money from my savings account back into the checking account. So if there is a purchase above a budgeted amount that has to be transferred back into the checking account I generally don't buy it. I really don't like transferring money from the Savings account into Checking.
Step 3, after $1,000 has been accumulated in the savings account (emergency/opportunity fund) any additional funds can be transferred off into higher interest earning accounts to develop wealth.
1. Download the editable budget and list all of your income and expenses.
2. Are you currently able to Save 20%, Invest 10%, and give another 10% in Charitable Contributions?
3. What would be your second savings goal after you have saved $1,000 for an emergency/opportunity fund?
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