6 Ways to Start Paying Yourself First
Consistency and discipline are key to develop the habit of paying for yourself. Start with little steps to achieve your big dreams.
You’ve probably heard this piece of advice practically across all financial websites and blogs you visit — and with reason. Paying yourself first is a core principle of personal finance as we have mentioned in The Best Personal Finance Strategy — Pay Yourself First.
The concept might still be hard to grasp, especially that of saving for a far off future we might not even reach yet. Add to that the piling bills, debt, and other expenses that knock at your door the minute you receive your monthly paycheck. Saving for yourself seems like an impossible task, and an impractical idea. But it is doable. And you can do it.
You can start with little steps that don’t have to be hard on your pocket. We’ve listed down six ways you can adopt to ease into the habit of paying yourself first.
1. Develop a morning ritual. Keep a piggy bank.
If you don’t have a savings account yet, a good alternative is to keep a piggy bank. It doesn’t even have to be a piggy bank. A mason jar, an empty tin can, or anything where you can put away a portion of your salary will do. Make it a habit that every morning, before you leave your house, put away a specific amount into your piggy bank and keep at it. It is important to do this in the morning before you spend money on your transportation, food, etc.
Keeping it physical helps give you a real sense of value and growth of your savings. It also generally keeps you more disciplined when it’s an actual physical action that you’re doing.
The amount doesn’t even have to be that big. You can start with P5 or P20 and begin from there. You can increase the amount as your base salary increases. Just be consistent on the amount for a specific time frame, and make sure you continue to do it without fail everyday.
In one year, your P5 a day will amount to P1,825! You’ll be able to save enough within a month to enroll for a savings account. Depending on the bank, you can open a savings account for as little as P100. Having a piggy bank gives you a means to safeguard your daily savings.
2. Make short to medium term savings goals.
Looking to save for retirement might seem a daunting task. Especially if you’ve started working recently and have a good 30-plus years before you turn 60. Paying yourself first, or saving for the long term doesn’t feel as urgent. It might help to adjust your perspective into shorter financial goals instead.
For sure there’s a place on your bucket list that you’ve been dying to visit; Or you want to take advantage of the lower gas prices to purchase your first car; Or save yourself from a long commute and buy a condo closer to where you work. These are financial goals themselves that you can start saving for now, and then reap the fruits of your labor in five to ten years. Being able to pay for your car in cash, or having a bigger down payment for your first home will save you thousands of pesos in the future.
3. Save your insta-cash.
There’s going to be a point in your life when a huge amount of cash suddenly drops in on your lap unannounced. No, it’s not suddenly winning the lottery, but yes that counts. A more realistic example, however is receiving your 13th month bonus, or finally being paid for a loan a colleague borrowed from you. This is cash that is not normally in your cash flow. You’ve survived month after month without it and suddenly this unexpected cash comes in.
If you don’t have debt to pay off, and while it is tempting to splurge, deposit it instead. The big boost will definitely pay off in terms of compounding interest in the future. The longer and the higher the amount sits, the higher you earn. Of course, putting it into other types of investments will yield even higher returns.
4. Keep paying paid off debt… to your deposit
So you have you’ve been settling debt from a bank, from a colleague or paying off your credit card. For sure, you’ve allotted a certain amount from your monthly expenses to pay the installment. Paying off the total amount suddenly opens up your budget and gets you additional cash to spend. Normally after completely paying off a loan, the next step to would be to add another type expense — buy a new phone, purchase the latest TV, or ask for another loan, right? Because now there’s free space in your budget and you can afford it!
Hold that thought and think: If you were able to settle a P20,000 debt within a year, doesn’t that also mean you can save the same P20,000 in a year? With the debt out of the way, and excess money you now have, you can easily start building your future fund. If you have not started paying yourself yet, this is the best time to start!
5. Contribute to SSS if you haven’t started.
Social Security (SSS) is the most basic type of insurance available for Filipinos. This is mandatory for employees. But if you are an overseas worker, freelancer, housewife, or running your own business, and don’t know where to begin paying yourself first, start with enrolling to SSS. You can become a member for as little as P100 per month.
Aside from receiving pension upon retirement, you can claim an allowance paid for the number of days a you are unable to work due to sickness or injury. A similar cash allowance is granted to a female member when she gives birth or have a miscarriage.
Unlike a savings account, however, the money you put into SSS cannot be easily accessed, for example during an emergency, unless you file for a loan. This might be an advantage or a disadvantage depending on how you look at it.
6. Contribute to Pag-IBIG, too.
Another state-run institution to consider to kickstart paying for yourself is Home Development Mutual Fund (Pag-IBIG). Becoming a member serves you two purposes. One is you get to loan for your future home, and second you can avail of the Pag-IBIG’s savings program. As an alternative to a savings account, you can start building your future wealth with a minimum of P200 a month. If you choose to forgo the home loan, the dividends you can earn in retirement, is higher than what you will gain if you leave your savings sitting in a bank account.
Again this is mandatory for employees, government and private. So you don’t have to worry because your employer will file this for you. But when you don’t have that luxury, take the extra effort, and cash to avail of this program.
These are just a few ways to start the habit of paying for yourself first. The first few months may be hard, but it will become easier once you develop the discipline to save. As you gain more freedom and control over your finances, you are better equipped to take on other investment options that offer even higher returns, which will ultimately secure your future. This way you can be financially prepared to weather any emergency life throws at you.