On the Importance of Paying Yourself First

Saving money to cover expenses in case of an emergency is one of the most important things you can do. One of the most common reasons that people get into debt trouble is because of a situation that could have been made easier if they had money saved to cover it.

As fundamental a concept as this is maybe, I still hear the same responses, “After I pay my bills I don’t have any money left to save.” I always respond with, “Pay yourself first!”

A large number of people think that you have to have several thousands of dollars saved for an emergency, well, this isn’t true and for many it is impractical. However, there is no reason why you cannot save $20.00 per payday. $20.00 is what a few coffees during the week, or lunch may cost, so not having that 3pm coffee or bringing your lunch to work a couple days a week, will allow you to save for a rainy day. If you did this every pay day, within a year that $20.00 would amount to $520.00 (assuming you get paid every other week). That is a great start to saving for a rainy day.

In terms of paying yourself first, set up an automatic deduction from your paycheck. This way you don’t have to think about it or take an extra step to get it done. Also, I would suggest putting the money somewhere you cannot readily or easily get access to it. This money is for emergencies, not a night out on the town. This can easily be done by opening a savings account without an ATM card. If your employer offers direct deposit, they should be able to deduct $20.00 automatically out of your paycheck and deposit it into this special savings account. This way, the money you are saving is out of sight and out of mind until the time comes when you really need it.

Paying yourself first and saving for a rainy day is not just a good idea, in many cases it can save you big money down the road.

Black Enterprise Columnist Jennifer Streaks, is a Financial Author, Expert and Pundit. Continue the conversation by following her on twitter @JStreaks or visiting her website for more MoneyTips at www.JenniferStreaks.com.