Pay Yourself First is the mantra of many personal finance experts and I have used it often in my articles too. However, I did it not always correctly.
I thought that paying yourself first meant giving yourself a monthly spending limit by transferring a certain amount of money to a separate account.
This is a method that helps you manage your money better, but the exact definition of Pay Yourself First from Investopedia is a bit different.
Paying yourself first means transferring a certain percentage of what you earn to a separate account, first of all, as soon as you receive the salary and allocating this sum to savings. In this way, the savings are automatic and fixed every month.
This method can work and has always been used as a ploy to save in the belief that if I take a certain amount out of my hands I can automate my savings.
Several times I have tried to adopt this tactic and I must say that it works if you combine the money transfer with the inaccessibility of the account to which the money is transferred. This is because otherwise there is the risk that at the end of the month, when you are unable to meet all the commitments, you will go back to using the amounts set aside.
For example, you can transfer the money to an account managed by a third party, usually a family member, or tie the invested money into an investment.
Finally, you can find a step-by-step method to put this system in place, which is to decide how much you want to set aside and start gradually to get to the desired figure.
For example, you can decide to set aside € 1,000.00 and in this case, you can start with € 500 and then increase by € 100 each month until the goal is reached in 6 months.
In this way, it is possible to get used to and arrive with maturity and without trauma to automatically manage your funds and investments.
I decided to manage my insurance finances a little differently, but basically, I have to say that the system is not very different.
Since this month I have created a new rechargeable card on which I will transfer a fixed amount to be used for my expenses. Let’s see if it will work and if I will be able to save and achieve my goals. I am counting on this because 2021 must be the year of strong growth in my assets.
And do you pay yourself first or do you use other systems to save?