Personal Finance Tip 1: Pay Yourself First

2009-04-15T22:31:00.006+08:00

Isn’t it funny that after every month when our salary is exhausted we vow that the next month would be better? We keep telling ourselves that in the coming periods to come, we will be more prudent in our spending. But it never seems to materialise. When there is the lure of the four-letter word: SALE, the we lose all objectivity and the cycle repeats itself.

Now, isn’t this a familiar scene – one where majority of the people like you and I can empathise with? Yet, all hope is not lost because there is a way to break out of this vicious cycle. One of the most effective (but often taken for granted) strategies is to pay yourself first. Perhaps you may have heard of this before, but allow me to remind you again.

Here’s how to start:

1. Monthly commitment. Each month, when you pay your bills, the first cheque you should write is to yourself. Decide on a figure you want to set aside for every month and immediately stash the money away in an account you most likely will not have easy access to. Ensure the figure is something reasonable so that you won’t over-commit and starve until the next paycheque comes in.

2. Diligence and discipline. The 2Ds are what you must keep in mind when you opt for this strategy. You must do this diligently and conscientiously without missing one payment! Just think what will happen if you miss payment to your telco provider? Chances are you may have your phone lines cut. This is the same for yourself. You are a creditor to yourself.

Thus, pay your bills as usual, but pay yourself first. If you do not have enough money to cover all the expenses, write down the shortfall and then find a way to raise the money. You’ll be surprised at how creative you can be in getting extra funds when you’re forced into this situation.

3. Stick to your commitment. Once you’ve made a mental commitment, it is best to write it down and place the promise in places you can see. That way, you are constantly reminded to keep your promise and pay the first biggest creditor – yourself. This is a contract between you and yourself.

To be successful, you have to be determined enough. Any reason to slack off will eventually lead you back to the I-don’t-have-enough cycle. It is not so much about the amount of money you are saving, but rather, how consistent you are in managing your monthly cash flow.

When I started working, I had little to spend due to the measly pay I got as a fresh graduate while trying to cope with the increasing cost of living.

After a couple of jobs, my salary increased. And the spending power has increased with the salary hike. Initially I found it still tough to save. I started to snap out of this cycle after realising that after 3 years of working, there was nothing in my bank account.

I was living hand to mouth on my salary. But assuming if one day, I were to be out of job - I’d be feeding on grass then!

That was when I realised. If I don’t do something now, I will forever be depending on my salary to survive. And when there is no more salary to take, what other means would I have? Nothing!

Over the years, I’ve learnt to stash a fixed amount of money (no matter how miserable it was) away from my access. It’s amazing to find that that little molehill kept hidden is gradually building up.

Currently, I’ve developed a routine whereby every month I will auto-debit out a minimum amount to a fixed deposit. I know the interest yield is not much, but until I find a better place to grow my money, the FD is the safest place so far.

I will talk about how to grow your money, but that would be another story all together.

That money stays there and I will not touch it if there is no emergency need to. And a sale is not a good excuse for an emergency! To buy, sin. Not buying, sin. This will be discussed soon in the coming weeks.

Remember, a little step goes a long way. Think about the long term achievement. In that way, you won’t hurt so much from the pinch every month. It is worth every effort you make. Trust the expert on this.

Suggested reading:

Gary Foreman from The Dollar Stretch discusses if this really works or not. For an alternative view, read more.

Pay yourself first and regularly through dollar cost averaging. Read more...

~~Why you should pay yourself first and save for the future?~~ ~~Read more...~~ [Editor's note: This link is no longer available.]

Stay tuned to more free personal finance advice.

Personal Finance Made Easy

2009-04-14T23:05:00.004+08:00

The topic on Personal Finance is nothing new. It is often widely discussed - from reading material to online forums.

The Internet has a wealth of information on this topic. Self-help gurus come out with manuals on Personal Finance How-To, in return for a comfortable profit on the sale of these books. Even educational institutions are starting to implement classes to educate the young about managing their personal finances.

This goes to show that people are becoming more and more aware about the importance of managing their personal finances. Much to everyone's interest on this subject matter, many people are unsure how and where to start.

That is why this blog is written to guide beginners on how to manage their finances without having to starve or stinge on the necessities. Managing your personal finances doesn't require rocket science. In fact, what is needed is pure common sense and discipline. This is free advice - one that you do not have to pay a hefty sum to know.

Before we head on from here, I'd like to stress that this is not a How To Get Rich blog. You won't become an overnight millionaire by reading this blog. This blog is to help you manage your money well so that you can be prepared for a rainy day.

Stay tuned while I bring you the first instalment on Personal Finance for Beginners.

Note: This blog will be updated on weekly basis.

Personal Finance - Free Advice for Beginners

Personal Finance Tip 1: Pay Yourself First

Personal Finance Made Easy