10-11 years back, when I was literally jobless and just starting to venture out on my own with photography, yet not yet making much of any money to talk about, I was close to my lowest point financially since leaving college, I started paying myself first. My income was so small and I was super stressed about finances. It was just $20 a month I put towards savings. Out of sight & out of mind. I did it every month, I wanted to build a rainy day fund, an emergency fund so I would never be caught without an emergency back up. After a couple years, when I could afford it I added another $20 and tossed in any extra as it came along. Within 6 years I had saved over $6,000.
Living is about a whole lot more than just money, but money sure does help. This one key concept can help you establish a good practice for your financial life – pay yourself and your future first.
Last week I talked about getting a handle on where your money goes (see that article here). Once you know what you are spending and what holes you can plug. You will have a pretty good idea of how far your income can go throughout each month and what you can squirrel away.
This concept is one I learned all those years ago from a guy named Dave Ramsey (a big money guru). It has been incredibly transformative and helped me go from stressed and broke to having several thousand dollars saved for a rainy day.
By doing this you are literally paying for your future. Budget an amount, any amount, even if it’s just $20 a month to start that goes straight away into a savings or investment account. Don’t touch this money, just let it build and grow over time. If your income grows you can add more to this monthly investment as it does. $20 a month for a year is just $240, not much right? But $20 a month for 5 years is $1200, if you can stretch that to $100 a month for 5 years you now have $6000 saved, just like how I saved $20+ a month to reach over $6,000, you can start small and grow steadily too.
Another aspect to this is to decide how much you want to “pay yourself”. What I mean is make sure you give yourself an allowance each month so that you can actually do something special or save for that more extravagant thing you have been wanting but doesn’t fit in the budget. Pay yourself, after all you are the one working to bring the money in, you should be able to enjoy it as well (within reason) even if it’s just $20 a month, you can blow it on whatever you want, it’s more symbolic then anything, it helps you psycologically feel less “strapped” to have a little play money.
Similarly there are other categories you can do this with: having an emergency fund (one you don’t touch – unless it is actually an emergency), savings, school, auto/transportation, vacation, pets, photo gear, entertainment, meals out, clothes fund, etc. The list is endless. You decide and name the category(s) that are important to you and how much you can afford to put in each category each month. If you don’t use it one month then the next month you have double.
You can use an account at the bank for some of these and you can use an envelope system for the smaller items that you may use on an ongoing monthly basis. Either way you will have a clear way of knowing what money is designated for what and be well on your way to living within your means.
You will be amazed how fast it adds up and thrilled when that next emergency happens and you have that padding that you have saved over time to take care of it without the same amount of stress and worry all because you payed yourself and your future first.
Figure out the categories of your out of pocket monthly spending that you’d like to start working towards and how much money you can put in each category per month, don’t forget to add savings & emergency funds and watch your finances grow and you feel more empowered financially by simply paying yourself and your future first.
