Add a new trick for the association that doesn’t know how to accumulate money
Pay yourself first is a budgeting strategy. Individuals should contribute to retirement accounts, emergency funds, and savings accounts before spending their paychecks on anything else.
This is a fairly simple concept to understand. However, to really apply it to an individual’s finances takes a bit of patience and self-discipline.
What does it mean to pay yourself first?
Definition of Paying Yourself First: The self-pay first approach, also known as reverse budgeting. Pull out a portion of your paycheck for savings before spending any other money on bills, groceries, or discretionary items.
How much should you save? Savings amounts are often pre-determined against larger financial goals. For example, you need 1 billion to retire and save time is 30 years. On the contrary, every year you have to save more than 30 million dong, not including compound interest.
How do you pay yourself first? You can automatically transfer pre-planned funds into your savings funds.
For example, if you want to pay 3 million per month, set up an automatic contribution instead of doing multiple operations to transfer money each pay period. This makes it easier to commit to your monthly goal. Because before the money can “ting ting” to the personal account, it has been partially deducted for another fund.
Note: There are several options you can use to implement a first pay strategy that works for you financially. If you want to transfer funds yourself instead of automatically, that’s perfectly fine! This style of budgeting is really about consistency. Each month contribute a certain amount to your retirement plan or savings account.
Pros and cons of pay yourself first
The main benefit of setting aside savings first is taking advantage of compound interest, your money will grow over time. This strategy forces you to live within or below your means – as long as you don’t start swiping your credit cards recklessly.
In addition, it also helps you achieve your savings goal. You may want to set aside some money for big purchases. Such as house, car or dream vacation. Or put your hard-earned money into emergency funds, personal savings, and retirement to prepare for the future.
Besides the positives, there are some potential downsides that can come into play under certain circumstances. Simply put, the strategy is not right for everyone. As you learn about your first self-pay method, consider how it fits into your personal financial landscape.
Here are some examples where paying yourself up front might not work for you:
Over budgeting: If the plan is not based on the actual situation, your finances may be in crisis. Before you commit to a monthly savings goal, use a budgeting tool to determine how much you can reasonably afford to “freeze”.
Accumulate more debt: Interest accrues over time. Waiting to pay off a credit card or consumer loan, for example, means you’ll have to pay more interest on the balance. While prioritizing savings can get you more monthly interest, it can be much less than the interest you pay on your monthly debt.
How to pay yourself first
1. Evaluate your monthly income and expenses
Before you decide how much you want to save each month, consider both fixed and variable expenses.
Fixed costs are fixed amounts you have to pay for basic needs. Such as rent or mortgage payments, home bills and health insurance.
On the other hand, variable expenses are not always the same. Sometimes you can completely remove them from your life. Such as entertainment costs, car maintenance, dining out, …
Once you can project your monthly expenses, subtract your monthly expenses from your monthly income to see how much is left. Depending on your savings and larger financial goals, you may be able to adjust some of your spending.
2. Determine your savings goal
Now that you have a better understanding of your income and expenses, you can set some savings goals!
If you don’t know where to start, consider the 50/30/20 rule.
– 50% of your budget should be for essential expenses such as housing, food, utilities, and minimal debt payments
– 30% should be spent on desirable and lifestyle expenses
– 20% will be transferred to your savings
3. Review and Refine
Whether you’re using the out-of-pocket method or another savings strategy, it’s important to remember that your budget is never fixed. As your life changes, so will your finances. A higher salary or a reduction in your cost of living can provide more savings opportunities, while a recent cut in wages or expenses can have the opposite effect.
To keep your budget optimized and up to date, take the time to review and re-evaluate it on a regular basis especially when there are significant changes.
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at Blogtuan.info – Source: cafebiz.vn – Read the original article here
