Pay yourself first
Many people these days are trying to scrape by from paycheck to paycheck and have no idea of how they can start to save for the future. Well I am here to tell you the best way to accomplish this. This is not a new groundbreaking idea. In fact, you have most likely already heard this strategy mentioned time and time again by many different financial advisors. The crazy thing though is that people are still not practicing this foolproof financial strategy.
So you want to know what this foolproof strategy is huh? Well I kind of ruined the surprise by the title of this post, but here it is anyway…PAY YOURSELF FIRST!!! For those of you who have never heard of this strategy, this is how it works. It is very simple, and anyone who can do it NEEDS to do it. What you need to do is designate a certain amount of money each week, month or paycheck to go into a designated account that you have agreed not to touch unless it is an absolute emergency. Whatever money you have left over you can use for bills, rent, food or whatever else you would like to spend your money on. When you have less money to spend, you will be forced to find ways to spend your money more wisely. You will start to think twice about whether or not you need that $4 cup of coffee each day, and for those keeping score at home that adds up to ($4 x 5 days/week x 52 weeks/year) = $1,040 per year. Imagine what you could do with an extra $1,040 per year. That is the equivalent of giving yourself a 50 cent per hour raise without having to beg your boss!
Now you are probably wondering how it is that I manage my money. The way I am about to describe to you is the way that I have been doing it for the past 3 years. First of all, I have my paycheck direct deposited to my bank account. This removes the temptation to exchange my paycheck for straight cash like so many people love to do. Secondly, I have set up a bank account at an Internet-only bank. For those of you who are untrusting of Internet-only banks, choose a bank that doesn’t have many branches, which will make it difficult to access your money for impulse purchases. I currently bank at Virtualbank.com. I have been using them for over three years now, and I have never had a problem with them. This bank is a division of Lydian Private Bank, which caters to high net worth individuals in the Florida area. Knowing this should remove any doubts of the legitimacy of this bank. Every Thursday I have Virtualbank.com transfer $50 out of the checking account that I have my direct deposit go to. If I keep this up for an entire year I will have saved ($50 x 52 weeks/year = $2600). Since Virtualbank.com is online only, I can’t access my money immediately either. If I want to transfer money from Virtualbank.com to my main checking account, it will take about 3-4 business days for the transfer to be complete. Therefore, if I have any impulse purchases that may cost a decent chunk of change, I will have 3-4 business days to think it over and decide if it is really worth the money. Anything that I have left over after I transfer my money to this savings account I can use as spending money for bills.
So you don’t think that you can do this huh? Well I am doing this while making $12/hour and working a regular 40 hour week. Here’s another little tidbit just to top it off to inspire you a little bit more to save…I am also making my maximum IRA contributions ($5000/year) each year. This comes out to ($5000/12 mos = $416.67/month). So there you have it…I am saving $2600 + $5000 = $7600 per year on a $12/hour paycheck.
If I can do it, so can you!
For those of you who need a little more convincing, if you sign up for an account at Virtualbank.com right now, you will get $20 for free. If you decide after a few months that you don’t like them you can close out your account and keep the $20. To get this offer, you need to access the site through this link. As another added bonus, their money market account is paying 3.95% as of the writing of this article. Although this is not extremely high, it it a lot higher than the national average for a money market account.