When it comes to devising a savings plan, many of us think that we’ll save whatever is left over at the end of a pay cycle. The reality is that it almost never comes to fruition because most of us tend to spend leftover money. If you’re serious about putting money aside in savings, paying yourself first is one of the best ways to save money.
Pay Yourself First
After you’ve created a budget and determined how much you can put into your savings account each month, the next step is to put the plan in place. Adding money to your savings account should be as mechanical as paying your bills and should happen right after payday.
How to Save Money Automatically
- Auto-Transfers: If you know exactly how much your bills are and how much you need to get by each month, why not automatically transfer an amount you can afford to your savings as soon as you get paid? Even $25 a month adds up over time.
- Save Tax Returns: Instead of splurging and spending the entire thing, consider putting the bulk of it into your savings account and budgeting a smaller amount to spend on yourself.
- Set Short & Long-Term Goals: Once you have enough savings to start planning long term, consider allocating the funds across different savings vehicles to maximize your return. Check out our guide for Diversifying Your Savings Plan.
- Increase 401(k) Deductions: Increasing your 401(k) payroll deductions by 1% every year following a raise is a great way to save more for retirement without ever “missing” the extra money.