Dreams and financial goals are important, but reaching them would be rather impossible if no plan exists to save money for those goals. You can reach your goals and live life on your terms by paying yourself first.
The Reason
Let’s use a simple illustration to demonstrate the impact your priorities have.
Envision a large jar. You have some rocks, pebbles, and sand, and you need to fill up your jar.
In this metaphor, the big rocks are the things that are most important to you – goals like retirement, buying a home, higher education, or an annual vacation. The pebbles represent important things that are not necessarily goals, such as rent, car insurance, cell phone, food, and utilities. Finally, the sand is the stuff we spend money on but don’t receive any lasting benefits. An example may be the streaming service you never watch, dining out often, or impulse purchases at the grocery store.
The pebbles will probably need to go in first, as these represent the expenses you need to live. If you put the sand in next, it will fill in most of what is left. You now find your jar mostly full, and there may not be enough space to get the big rocks in. However, if you put the big rocks into the jar first, they all fit. Then, the pebbles fill in some of the gaps. Finally, the sand filters into those little nooks and crannies.
It all fits because you put the big rocks in first. The same is true of your money. If you set goals, put them first, and automatically save money towards those goals before spending on “sand,” you have a much better chance at reaching them.
The Plan
Paying yourself first means setting aside funds for your future before the less important things like “sand.”
- Set short and long-term goals. The easiest way to do this is to create a list of what you want from your money. Then, list each goal, how long you have until you want to reach that goal, and how much you have already saved. Lastly, calculate how much you need to save monthly for each goal based on the timeline you want to achieve them.
- Pay yourself first. A good way to do this is to set up direct deposit from every paycheck into separate accounts. This way, you can pay your “pebbles” from your primary checking account and can have multiple savings accounts for different goals. It’s hard to miss something you never had, so this option is a great way to organize your finances and prevent overspending.
- Check in on your savings plan every so often to ensure that your goals and priorities are aligned. Life happens, so being able to roll with the punches will boost your financial health and give you peace of mind.
Paying Yourself First Pays Off
Putting your future first helps you achieve your goals faster. So recognize your big rocks, plan for your pebbles, and skip the sand when you can.
Source: Ascensus.