Paying Yourself First: Get Rich Slowly

Paying Yourself First 

1 million dollars seems a long way off but if one adapts the habit of paying yourself first the million dollar may be closer than one realizes. Paying yourself first means setting aside a portion of your paycheck to go into savings where is collects interest and grows over the years. Most people spend there money in this order bills, fun and savings by changing the way one spends their money so the order is savings, bills and fun the sum of money that has been saved can be used for long term purchases like retirement, buying a house and emergencies.

How To Get Started

When starting out, starting small is always a good idea until you are used to paying yourself first and understand finances better. 3-5% is a good portion of your paycheck to set aside at the beginning since it is a very small percentage and one will not notice that missing portion of their pay. Another tip is to automate, this means having the bank transfer the percentage of the paycheck you want to go into saving without you having to do it yourself. By automatically deducting a portion of your paycheck to go directly into savings one will not miss the money they earned since you will not know it is gone. Also you will not be tempted to spend that money since it is in a secure savings account. As shown on the graph above putting your money into a high interest savings account is the best way to get rich slowly. By using a high interest savings account and depositing once a month the money will collect interest on interest allowing the money to sit a grow. Unlike depositing a set amount at the end of the year because this money will not collect the interest ,that allows the money to grow, as fast as depositing once a month.  

Why You Should Start Paying Yourself First Now

Though one associates paying yourself first with the future and saving for retirement, starting as soon as you can is the best option in order to increase your long term savings. As a teenager saving for university is a big expense and by setting aside $25 dollars a month (the price of a cheap cell phone plan) into savings the money will collect interest and the gap between university and your personal fiances will not be as big if you did not save. Though I do not have a job yet when I do I will practice paying yourself first in order to increase my personal fiances.

http://www.investopedia.com/terms/p/payyourselffirst.asp
http://moneycoachescanada.ca/blog/paying-yourself-first/

http://www.getrichslowly.org/blog/2009/10/19/pay-yourself-first/
http://www.getrichslowly.org/blog/2008/06/16/personal-finance-made-easy-pay-yourself-first/

Compound Interest

You earn Interest on the money put in the bank, and then you earn interest on your interest this is compound interest. This helps people who save money early and often richer faster.

How does it work

If you deposit $1000 in the bank and it earns 5%, you will earn $50 in interest in the first year. In the second year not only will you earn interest on the principal you will also begin earning interest on the interest in the account. In year 2 the 5% interest will be credited against the full $1050 you have in the account and your total interest for year 2 would be $52.50

Automatic Deduction

Automatic deduction helps Canadians save money by automatically putting a percentage of their paycheck into a savings account when you get paid, because the money comes right out of your account before you get it you don't notice it's missing and it doesn't seem like you're saving money but then you have it when you need it later.

http://www.investopedia.com/terms/c/compoundinterest.asp
http://www.finweb.com/banking-credit/automatic-payment-deductions.html#axzz4BekmrF6b

Financial Future : Pay Yourself First

Financial Future : Pay Yourself First 

Pay yourself first is a phrase commonly used in personal finance that means to automatically route your specified savings contribution from each paycheck at the time it is received. 

In simple words, it means putting money into your savings accounts first (as soon as you earn it), before you spend it on anything else.

When you pay yourself first, you are mentally establishing saving as a priority. Most people spend in this order: bills, fun, saving. In most cases there is not much left over to put in the bank. If you pay yourself first and give saving your number one priority, you can already have some money set aside, before you think about spending it on something else. 
 

Pay Yourself First is not only important for adults, but also for teenagers and young adults. Once you start early, you can save for the future and have money saved for emergencies, education, etc.

Tips For Teens 

• It is okay to start small. You can increase the amount you save as you begin to feel more confident in your income. Try starting with $40 each month or 1% of your paycheque. As you feel more comfortable in your ability to save, try increasing your saving rate to 3% or even 5% of your income and build from there. 
• The most convenient way to start saving is to set up an automatic transfer on pay day from your bank account directly into savings. Automatic saving can be set up online and this will make sure you don't forget or get lazy. 
• It is better to start saving when you are still in school, and don't have to spend a lot of money on bills, mortgage or taxes. This ensures that majority of the money is actually being saved and you are also not under pressure from loans/other payments.

 Next Steps

Once regular savings has become a habit, you can use this trick for your short term goals as well. You can also now decide how and where you want to save your money. 

Types of Investments/Places to save

1. Savings Account- the safest and easiest place to save your money when you are new to the concept of saving. Almost every bank offers savings accounts and they allow you to keep your money in a safe place while it earns a small amount of interest each month. 
2. RESP- Registered Education Savings Plan , is a special savings account for parents who want to save for their child's education after high school. You can also contribute to this, by putting your savings in this account. The Government adds up to 20% to your RESP to help the savings grow. 
3. RRSP- Later on as I get older, I can save my money in a Registered Retirement Savings Account, which is a retirement savings plan to which you can contribute money to for your future and for when after you stop working. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you withdraw money. 
4. TFSA- Tax Free Savings Account : an investment account that can help you meet both your short- and long-term goals. Its for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. This comes in handy in times of emergencies, because you can take out money without paying tax.

Once you have enough money saved up, you can even invest in GIC's and Bonds. Later on, you can invest in mutual funds, or stocks. These have a higher risk but are also the most rewarding, since their value is depended on the market.

As of right now, I do not have to pay for housing, mortgage, insurance, taxes or for other bills. This way, I am spending less money on other things, and can save a larger portion of my earnings for the future. If I save at least 50% of my income, it can add up for university, a car, or other short term goals that I may have. In university, depending on where I live, I might have to decrease the amount of money I put aside(25%), because I will have more responsibilities and might have to pay for insurance, transportation, tuition or even for rent. When I graduate, although my income will increase, so will my expenses because, I will have to pay off any debt and would need to start saving for a house or other needs that I might have. As an adult, 25% might decrease to %10, because now I will have to pay for bills, and mortgage, and also will have other expenses because I will have my own family to take care of. 

Overall, pay yourself first, is an important technique that everyone should be using in order to save money for emergencies or for their future. 

http://www.stableinvestor.com/2013/03/pay-yourself-first.html
http://www.investopedia.com/terms/p/payyourselffirst.asp
http://www.esdc.gc.ca/en/student_grants/cesg.page
http://www.debtroundup.com/saving-investing-compound-interest-millions/
http://moneycoachescanada.ca/blog/paying-yourself-first/
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/rrsps-eng.html

Be A More Effective Saver

            We have all heard someone talk about how they can't afford their dream car, house, or maybe how they are still struggling to pay for education. Today I hope to bring some insight as to how one can begin a path to where such things become more "reachable" goals rather than seeming impossible.

            Now in order to begin on this path, one needs an understanding of not only how to save more effectively, but what to specifically save for. Now almost all Canadians have money put away in some form or another, and each may have a reason for putting said money away in the first place. But what a lot of people don't realize is that they may be saving for all of the wrong reasons. Now we live in an age where saving money can be a difficult task, not because money is scarce, but because there is always some new fancy gadget being released to tempt our wallets. Although it's nice to have the latest whatchamacallit, there are better, and more important things to save for in the long term. Because within the next few years that gizmo you thought was so important to have will be in your closet collecting dust, so was it worth it? Would it not of been better to put money towards say: a house, new car, tuition, or even your own retirement. A disregard for such useless things, and an awareness of what will have impact on your life, is needed if one really wants to be a more effective saver.


          There are hundreds, thousands, of ways to save money, but you need to understand a bit of the math involved. The most common way to save cash is to put it into a savings account, and those accounts usually have interest. This basically means that the value of your savings will increase by a percentage over the years. More specifically they use compound interest meaning the bank uses the current value of your savings each time. the new value with interest will replace the previous value, and this is where you may hear the term "interest on interest". Before, I mentioned savings accounts, but there are actually far more types of accounts that can be used. These accounts include: RESP accounts, RRSP accounts, and TFSA accounts. Each of these accounts have different purposes and benefits whether that is saving for an education, or for retirement.

            When it comes to actually saving money, and putting it towards an investment like a house, I would suggest following these 4 rules:

1).Never spend money you don't            have
2).Save for large investments
3).Keep an emergency fund
4).Budget as often as you can

These simple rules can be applied to any situation, and they can be used separately or together. There are other options out there, but I find that these are the most useful. With these rules also comes a secondary rule, actually putting money away, I would at least put 10% of my paycheque, minimum, into my savings account, or put away a maximum of 50%. This depends on your current situation, it may be best to only put away 10% because you have other expenses, or, like me, you may still me young and can afford to put away a large portion away because you still live at home. But the best advice that I can give anyone is to start saving young, and put away as much money away as humanly possible before you have to start supporting yourself.

               Work hard, save smart, and when the time comes you will have the wisdom to understand how to make money work for you, instead of you working for the money. I hope that I have given you enough insight of being an effective saver that you may plan, and afford, any future investments.

Thank you.

Image links:
http://lewisaccountingandtaxservice.com/
http://www.3dtuning.com/pl-PL/tuning/chevrolet/bel.air/coupe.1957
http://www.surplusfurniture.com/blog/part-2-3-ways-to-save-money-at-surplus/

Paying Yourself First

Paying Yourself First 

Not everyone is, savings savvy, but with one easy tool everyone can be a professional money saving guru. Paying yourself first is , I feel, the best way to save any amount of money under any circumstances. As soon as you were to get any pay, putting a percentage or a set amount into any savings account is to summarize what paying yourself first is all about.

When you put this money into savings your future self is already thanking you. Doing this will put you into a very good habit and routine to be in. Most banks have an automated system making it effortless to be placing this money away on any set day you wish to. I for one have been doing this for a few months now and yes it does decrease my amount to sped but it is always worth it in the long run or an emergency when I need this money. Once the money has been put away in a sense its not going anywhere its just going to your future self and once you have put it away over and over it starts to feel normal and you wont even miss the money you are putting away.

How To Do It

The easiest way to do this is to set up an automatic savings account that drags a certain amount of money out of your chequing and into your savings. If you were to need some of the money to pay your bills you can easily take out ONLY WHAT YOU NEED to pay those bills. If you are saving for school it might take just a little longer but you will get to that right payment. If you are my age, 16 and you start now while working a part time job, you need to work your ass off and not spend anything but you will get enough money to not have huge school payments. You just have to Pay Yourself First.

1. Have a Steady Income
2. (optional) Set up automatic withdrawal and deposit into savings account
3. Pay bills or liabilities
4. Pay Yourself First 
5. DO NOT TOUCH MONEY UNTIL EXTREMELY NEEDED
6. Enjoy the money in the future and thank yourself 

How It Can Help

Having this money set away will never have a downside. It can only help you later on in the future. Money is money and can be used for anything so saving enough money can really help you to do anything as long as you have done this right and saved up enough money throughout the days, weeks, years.

http://heatbypump.com/additional-savings-limited-time/
http://moneycoachescanada.ca/blog/paying-yourself-first/
The Smart Savvy Young Consumer - How to Save and Spend Wisely (Pat Foran)

Budgets (sample post)

Setting a budget ensures that I will not over spend on certain things, and will make sure I stay within my means and do not spend more than I make.   

http://gailvazoxlade.com/blog/archives/604

• 35% for housing (mortgage/taxes, rent, utilities, insurance, maintenance),
• 15% for transportation (car payments, gas, repairs, insurance, parking, transit),
• 10% for saving (long-term saving),
• 15% for debt repayment, and
• 25% for life (everything from groceries to entertainment, medical to childcare… In fact, everything that’s not in the other four categories.)

This is Gail Vaz-Oxlade’s, from Till Debt Do Us Part, pie chart showing how much of one’s income that should be spent on each category. I plan to follow this pie chart but make slight modifications to it to fit my situation like Gail suggests.

• Right now I do not have housing to pay for or debt to pay off so I can eliminate these categories. I will put 20% towards saving 40% towards current transportation and saving for my next car, 40% towards life.

• As soon as I start university I will have housing and debt to pay off so I will make modifications to this pie chart again. I will not need 35% towards housing so I will change that to 30%, I will live on campus and will only need 15% for transportation; I will put 25% to life, and 30% for debt to pay off student loans so I can pay off my loans as soon as possible.

• When I graduate from university and settle down I will have to make modifications again, this time I will be buying/renting a bigger home and will need the full 35% for housing, I will make life 25%, I will need more for transportation to drive to work so I will put 15% toward transportation, and 25% towards debt to get rid of student loans. Once those are paid off, I’ll change debt to 0% because I will no longer have debt, and move the rest to savings making savings 25%.

Overall, by budgeting, My goal is to save up for the things I want and need, such as schooling, house, car, and entertainment, and to live within my means.

Pay Yourself First

There are many benefits from “paying yourself first”. Regular deposits will, over time, develop into a large balance. This money can go towards anything from emergencies to planned future purchases. Having this money on the side is a good idea because it will always have a useful place and will build to tremendous wealth over time. There are other aspects as to why “paying yourself first” is a good option. For example, the psychological aspect. There are many mental benefits to saving up your money. Saving is a good motivator in itself while money on it’s own also creates some peace of mind incase there was ever an emergency. Another benefit of “paying yourself first” is that by reducing your income as soon as you get it, you are able to rationalize the way ways to spend it.

To pay yourself first, you must designate a certain amount of your paycheck as your pay and pay that money to yourself first, before bills or anyone else. The important part isn’t how much you pay yourself, the important part is that you pay yourself first instead of last.