Pay yourself first. Maybe you’ve heard this before on the radio show of a financial guru. What does it mean?

It’s Easy to Borrow

Every Christmas, with people at the mall for shopping and gift-buying, remember 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. People with recent debt can still file Chapter 7 bankruptcy; it just means that we’ll have to be careful in how we plan the timing. Generally, the less you use those cards, the better.

Living Off Cash

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 credit cards 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. (and if you’re like me, the gift is really for me). Just spend what you have, and use those credit cards sparingly, if you can still use them at all.

There is no more important bill than you.

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:

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?

The Future You Will Thank the Present You

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. Set it up through your bank. You won’t miss it.

How do I know? The same way you don’t miss all those taxes Uncle Sam 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 the idea of Pay 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 “take home” 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.

You Don’t Need Credit

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.

If we need to make an appointment to wipe the slate clean, let’s touch base in the next couple of weeks and arrange it. And to all my clients, past, present, and future, thank you for allowing me to help you get your fresh start!