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Pay Yourself First

A plan for saving money for your own rainy day fund

by Hale Andrew Antico, Esq.

I hope that this month's newsletter finds you all in joyous spirits with holiday cheer as we ramp up to the new year. In these days of last-minute shopping and gift-buying, consider this a helpful reminder that today's joyous gifts will be tomorrow's credit card debt. If it's possible, try to use the credit cards as little as possible, especially if we've talked about getting started on your fresh start after the first of the year. Now, this doesn't mean that if you've been charging that a BK won't help; it just means that we'll have to be careful in how we strategize the timing. In general, the less you use those cards, the better. Let's make a point to talk about this in person when we meet.

Cash. It can be your friend. Of course, many of us don't have a choice, as our cash flow is negative and we need the credit to help make up the difference in our budget each month. When we make your credit card debt go away, you'll need to start getting in the habit of living off of cash. Let me tell you, it's actually quite liberating. So, if you can, try to spend only what's in your bank account, using a debit card or whatever cash you have. Avoid credit cards, especially when tempted next time you're walking through Best Buy and need that special gift... for them or for you. Just spend what you have, and use those credit cards sparingly, if you can still use them at all.

Since there is a very good chance you'll be living within your means and off cash once a bankruptcy goes through, one of the soundest pieces of advice I can give you has to do with saving. I know, I know. Your paycheck disappears right after you pay your bills each month. But there is a secret that helps you save, and it has to do with human nature, some discipline/routine and your attitude.

The Secret:

Pay Yourself First

What do I mean by that? By this, I mean to treat yourself -- You! -- as a bill. You always have money for rent, right? And the electric bill. And then, after you pay your bills, there's some spending money and of course, that will all get spent. That means nothing is saved. Why not treat you as a bill as important as rent?

If you pay yourself first, you're forced to save. There is no more important bill than yourself. So, when it comes time to pay your bills each month (or each half-month), make sure you set aside a small amount of money for yourself. Write a check made out to you for deposit into a savings account if you have to, just to force yourself. Even easier is a direct transfer sThere is no more important bill than YOUet up through your bank. You won't miss it. How do I know? The same way you don't miss all those taxes Uncle Same takes out of your paycheck each period. Since you never had those withheld taxes, you don't miss them. But most of us work five months paying only taxes and don't get to make our first dollar for us until June. Why isn't this more painful? We never see it. Taxes are the ultimate "pay first."

Same with Paying Yourself First. Almost all of us can get by on 5% less spending money each month. Especially if you are stuffing it away before you pay your other bills. If you're really good, you can put away 10% each month of your takehome pay.

It may not seem like much, but those 5% deposits start adding up. And before you know it, you have a Pay Myself Freedom Fund. Since you'll be living off cash (and probably spending what you carry on you), your rainy day account will be growing and never used. If there's an emergency, and this is where you would normally whip out the credit card crutch, you can always tap into this Pay Myself Freedom Fund.

So, it is possible to live off of cash and ditch the credit cards. Let your savings be your emergency, and don't forget to pay the most important bill of all: the one made out to YOU. It just requires making it a routine, and you'll be glad once it becomes a habit.

Have a Merry Christmas, happy holiday, and let's make 2004 a great year. If we need to make an appointment to wipe the slate clean in 2004, let's touch base in the next couple of weeks and arrange it. And to all my clients, past and present, thank you for allowing me to help you get your fresh start!


Don't Delay

| 15.05.2006 | Print |