Pay Yourself First

Are you thinking about your retirement? If yes, then you have to pay yourself first in order to meet your retirement goals. You are more likely to meet these goals when you begin to prepare for retirement earlier than later in your working life. Numerous finance experts recommend that planning for your future should begin when you are 25 or 30 years old, while you're young enough to collect big benefits from many years of compound interest. If you already have retirement funds or a pension, it is still wise to pay yourself first to acquire more money for your future.

Definition

The phrase, "pay yourself first", is usually used in retirement planning and personal finance literature that refers to the automatic routing of your savings contribution from every paycheck at the time of its receipt. Since the contributions are routed to your account, you are "paying yourself first", before you even pay your monthly bills and make discretionary purchases.

Many retirement planners and personal finance experts see this simple system as an effective way to ensure that you continue to make your chosen savings contributions every month. This system eliminates the temptation to skip giving contribution and also removes the risk of spending the funds before you make your contribution. Some financial experts even consider paying yourself first as the golden rule in personal finance.

Payroll deduction

Payroll deduction is perhaps the easiest way to make regular contribution to a retirement fund. This system is available through the employer. Here, you can choose how much you want to contribute and the fund will be deposited in another account even before you have the opportunity to see it or spend it. Payroll deduction as a way of paying yourself first has many advantages. The following are only some of its advantages: it happens with regularity; it is effortless on your part; there is less temptation to use the money to buy something; and you don't need to be reminded to deposit your contribution every payday.

Spending less

How can you accumulate retirement funds aside from payroll deduction? One way (albeit not the most popular) is to control your current spending to make money available for spending when you need it in the future. You will find it hard to grow a retirement "nest egg" if you cannot control your. Saying "I'm paying myself first" is definitely easier said than done. This is where the important role of payroll deduction is realized.

Windfalls

Many people develop the habit of putting all of their unexpected money, or windfall, into a retirement fund. If windfalls cross your path often and if you have the discipline, then this strategy might work very well for you. But here are some disadvantages of windfalls: they may not come your way frequently enough; unexpected money may not be huge enough to sufficiently fund your retirement; and there is always the temptation to use unexpected money for instant consumption - windfalls are not saved for later.