Parkinson’s law teaches us that work will expand or contract to fill the space available for its completion. We’ve all experienced this, perhaps even this morning.
Odds are, you have a morning routine. When you wake up on time, you progress through it and start your day. When you sleep through your alarm, you still progress through your routine, just a lot quicker. Everything still gets done, despite having less time to do it in.
Parkinson’s law can also apply to our spending. If you don’t have a budget or plan for your money, you probably find yourself broke at month’s end, living paycheck to paycheck.
Alternatively, when you have a plan for your money, you give each dollar a job and fund your savings, retirement, while also paying for your lifestyle.
It makes sense to have a budget. It makes sense to have a plan for our money. So why don’t we do it?
My work focuses on helping people reach their desired level of financial success. Today, I’d like to share my perspective on why you should begin paying yourself first, and how to do it.
If you’re in the habit of paying everyone else first, and paying yourself last, you end up with more month than money. You get stuck in the cycle of living paycheck to paycheck, and that’s not a happy place to be.
Here’s what we’ll cover:
- Putting yourself first
- The risk of not doing it
- How to do it
- How to make it real and sustainable
Let’s get started.
Putting yourself first
When we pay all of our bills first and wait till the end of the month to pay ourselves, we’re putting ourselves last. We’re giving priority to everyone else.
We need to change our priorities.
Making you and your financial priorities your top priority is the first step.
Putting your family and yourself first requires you to know what you want. You need to get clear on your financial goals and objectives. We’ve developed a Goals and Values framework to help you in that process.
Once you’ve taken the time to think about what you want your financial future to look like, you’ve set an intention.
The risk of not doing it
What’s the cost of not doing this? Can’t I just keep doing things the way I’ve been doing them?
You and I have enough time to do just about anything we want. But we don’t have enough time to waste. There is a cost of waiting when it comes to reaching our financial goals and objectives.
If you started saving $6,000 a year at 20, you’d have nearly $1.7 million in savings when you turn 60, assuming an 8% rate of return. If you waited until age 40 you’d have under $300,000 at age 60. That’s a difference of almost $1.4 million.
The best time to plant a tree was 30 years ago, the next best time is today. We all need to get serious about our financial goals and objectives.
How to do it
Once you know what you want and where you want to go, it’s time to put a plan together. This doesn’t need to be complicated, you’re fully capable of doing it on your own. Let’s go through some examples:
- Save for a down payment: Determine the amount you’ll need, say $40,000. From there, decide when you’d like to have it saved up by, say 3 years. That’s come out to saving a little over $1,100 a month.
- Save for kid’s college: Determine the amount you’ll need, say $100,000. From there, decide when you’d like to have it saved, say 15 years. Assuming an 8% rate of return, you’ll need to contribute $288 a month.
- Save for your retirement: Determine the amount you’ll need, say $1,000,000. From there, decide when you like to retire, say 30 years from now. Assuming an 8% rate of return, you’ll need to contribute $670 a month.
You’ve set an intention, determined how much you need to be putting away, now how can you increase your odds of success? By automating as much as you can.
How to make it real and sustainable
While it’s important to be fully engaged in your finances, there are certain tasks which can be automated. Bill pay, automatic contributions and rebalancing are three that immediately come to mind. In fact, if I didn’t have these three things automated, there’s a decent chance they wouldn’t get done.
This visual from Forbes is helpful in putting your six step automation process together:
Step one: Turn on automatic contributions to your employer-sponsored retirement plan. If possible, also turn on auto-escalate so your deferral percentage increases each year.
Step two: Set up auto-contributions from your checking account to your emergency fund account.
Step three: Set up auto-contributions from your checking account to your taxable brokerage account, college savings account, and any other accounts like an IRA.
Step four: Set up auto-contributions from your checking account to your vacation fund or other saving priorities like a down payment fund.
Step five: Set up auto-contributions from your checking account for all possible bill payments.
Step six: Set up auto-contributions from your checking account to your credit cards.
Setting this structure up can position you for success as you work towards your goals and objectives.
You’re someone who is capable of becoming financially successful. The first step is putting yourself first, and getting clear in what you want.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
Connect with one of our Certified Partners to get any question answered.
If you’d like help getting on the same page with your partner, check out our Same $ Page Course.
Stay up to date by getting our monthly updates.
Check out the LifeBlood podcast.
LifeBlood is supported by our audience. If you purchase through links on our site, we may earn an affiliate commission. Learn more.