pay yourself first

How to Use Budgeting Skills to Improve Your Time Management

Emily Guy Birken — Tue, 27 Aug 2019 08:00:06 +0000

Back when I was in college, a friend consistently asked for extensions on her essays. One evening, she mentioned the overwhelming relief she felt when she asked for a 24-hour extension, only to feel the exact same deadline anxiety and stress the following day as her new deadline approached.

While I had trouble relating at the time — I was a stickler for deadlines as a student — becoming a freelance writer has made me understand the alternating waves of dread/relief/dread that occurs when you put off a deadline.

What's interesting about this kind of poor time management cycle is that it's similar to the cycle of debt that occurs when you struggle with money management. In both cases, you're putting off thinking about future demands on your time or money because you're focused on the issues right in front of you. You put off your deadline, or borrow money to pay your rent, forgetting that there's another deadline or bill coming right behind the one you temporarily stalled.

The good news is that if you're actively tracking your spending and sticking to your budget, then you've already mastered time management skills — you just think of them as money management skills. But applying the following budgeting skills to time management will help you feel well-planned and stress free. (See also: 10 Time-Management Fails — and How to Fix Them)

Pay yourself first

We all know that planning to save whatever money is left at the end of the month is a good way to never save anything at all. That's why paying yourself first is one of the most important rules of good budgeting. Making sure that your financial plans are funded — before you let today's wants drain your savings — allows you to be a step ahead of future problems.

If you struggle with time management, you can also get ahead of future problems by paying yourself first. The trick is to take about 15 minutes each morning to review your calendar and make plans before you jump into your work for the day.

You might feel like you don't have enough time to take 15 minutes each morning for planning. After all, Sheryl in accounting needs that report ASAP and you still haven't prepared for the meeting with the boss.

But skipping your 15 minutes of planning is like forgoing your savings at the beginning of the month. It leaves you unprepared for things that you could've easily seen coming. Just like a transfer to savings at the beginning of every month means you won't be surprised by an emergency bill (or retirement, for that matter), committing to 15 minutes of planning each morning means you won't be caught blindsided by plans, meetings, deadlines, or other scheduling needs that you might otherwise overlook.

Automate

It's a lot easier to save money or pay bills if you don't have to think about it. Setting up an automatic withdrawal from your account every payday means you never have to think about transferring money to your emergency fund or 401(k), and automatic bill pay ensures you never miss a payment. You can simply let the automation do its magic without having to remember a thing.

Your time management will work better if it's similarly effortless.

Start by finding any recurring tasks you perform, and set up a way to make them occur automatically. For instance, if you receive a number of emails that require similar responses, creating email templates can help you automate your emails. Instead of crafting a new response each time, you can simply use your templates.

In addition, automatic reminders via your calendar app can help you to get your recurring tasks done. If you're consistently late turning in your receipts for reimbursement, an automatic reminder can help you remember the due date, give you a nudge a week before to start gathering your receipts, and remind you two days prior to organize your receipts before turning them in. (See also: How to Manage Your Money When You're Too Busy to Think About It)

Track your spending

It's difficult to know where your spending leaks are if you don't know where your money goes. This is why tracking your spending is such an important part of budgeting. You need to understand where you're being wasteful to know what expenses you can cut.

Time management requires the same understanding of how you spend. How many of us feel like we're terribly time crunched, only to realize we spend hours on social media. Until you know where you spend your time, you'll struggle to find more time to do the things most important to you.

Tracking your time can seem overwhelming, but it can help you pinpoint where your days are going. There are several apps that can help you track how and where you spend your time, including Toggl and RescueTime.

However, keeping an old school time tracker (i.e., on paper) may be even more helpful. As with financial tracking, remembering that you'll have to write down a wasteful decision (whether that's buying something you don't need or watching a YouTube video while you're supposed to be studying) can give you second thoughts about your choice.

Whether you use technology or paper to track your time, having a snapshot of how you use that time can help you avoid the big time-wasters. Spending hours going down a Twitter rabbit-hole does not help you reach your goals, and tracking helps you realize just how much of a time-suck it is to just "quickly check" your feed. (See also: 5-Minute Finance: Track Your Spending)

Your productivity budget

Just like handling your budget, staying on top of your time management is hard, but not impossible. Using the skills you've practiced on your finances can help you feel more in control of your time. And that feeling of control will always feel better than any extension on a deadline.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Common Habits of Retirement-Savvy Savers

Alicia Rose Hudnett — Wed, 13 Jun 2018 08:00:27 +0000

Here's some good news for anyone behind on retirement savings: Being a smart saver isn't difficult. There's no magic secret to getting it right. Once you understand the rules of the game, you'll know exactly what you need to do to manage your money wisely as you navigate through life.

Here are some standard practices that every retirement-savvy saver lives by. Let them inspire and guide you during your own phase of accumulating wealth.

1. They never pass up free money

Whenever you have access to a workplace retirement plan, always check to see if there is a company match on contributions. If there is, make sure you contribute at least enough to earn the match. This is one of the easiest and fastest ways to jump-start your savings — and, of course, it's free money. Not taking advantage of a company match is one of the biggest missteps you could take with your 401(k). (See also: 7 Things You Should Know About Your 401(k) Match)

2. They always know where their money is

There is something to be said for having organization among your financial accounts. Having multiple old workplace retirement plans can lead to higher fees (paying multiple plan management and fund fees) and an undiversified portfolio (not realizing that all of your retirement accounts represent one portfolio and should be invested as a whole). Each time you leave a job, consider rolling your old plan over into either an IRA, or if allowed, into your new company's retirement plan. (See also: A Simple Guide to Rolling Over All of Your 401(k)s and IRAs)

3. They keep retirement savings for retirement

While most early withdrawals of retirement funds will result in a tax bill and a penalty fee, there are a few penalty-free exceptions for certain accounts, including a first-time home purchase or paying for some higher education costs. But these are financial goals that should be saved for separately, regardless of the fact that the government allows you to touch your retirement savings for them. Once you earmark money for retirement, don't factor it into any of your other financial obligations. The best thing you can do for your retirement accounts is to let them grow. (See also: 5 Questions to Ask Before You Borrow From Your Retirement Account)

4. They pay themselves first

For most people, their first financial priority each month is covering their non-discretionary living expenses, like housing, utilities, and food. But serious retirement savers know that paying their retirement account every single month as well sets them up for successful saving. Build retirement savings into your budget as a nonnegotiable bill, not as a leftover expense that you may or may not be able to pay at the end of the month. (See also: 7 Reasons You Really Need to Pay Yourself First (Seriously))

5. They use tax-advantaged accounts

It's in everyone's best interest, including the government's, that we save for our own retirement. That's precisely why there are accounts specifically designed to encourage long-term savings. Whether you use a tax-deferred account, which allows your money to compound for decades before any taxes are due, or a tax-exempt account, which allows your after-tax money to grow tax-free and qualified distributions remain untaxed, or a combination of both — a strategic saver makes use of all available saving tools. (See also: 401(k) or IRA? You Need Both)

Being a retirement-savvy saver doesn't mean having or saving more money than everyone else. It's about knowing what moves can make a difference in your savings goals and being an active and purposeful retirement saver.

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This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Golden Rules of Personal Finance Everyone Should Know

Kentin Waits — Wed, 04 Jan 2017 10:00:08 +0000

We live in a world where information overload is part of daily life. But when it comes to personal financial information, maybe simpler is better. Embrace a moment of Zen. Tap into the simple truths that have served you well and the truths you can teach others. Here are the 10 golden rules of personal finance everyone should know.

1. Have a Goal

Without a clear set of goals, it's difficult to know what personal financial success looks like. Define your goals and then create a realistic step-by-step plan that moves you forward.

2. Distinguish Wants From Needs

Confusing wants with needs keeps people in a constant state of financial unrest. Understand that human needs are fairly simple — food, clothing, shelter, health care, reliable transportation, etc. Broadly speaking, everything else is a want. That doesn't mean we shouldn't indulge in wants from time-to-time (life would be bleak if we couldn't). It simply means we should choose our wants consciously and not let their constant pursuit jeopardize our financial security.

3. Live Within Your Means

Developing a solid budget and living within your means (that is, not spending more than you make) frees you from the maddening loop of working, overspending, servicing debt, and working some more. Learning to live within your means is an achievement in itself, but living below your means is even better. Spending less than you make leaves you with a surplus — the vital capital that funds your future.

4. Start Saving Early

When it comes to saving, time can be your best friend. Start saving in your early 20s and you'll not only have more time to accumulate significant wealth (even on a modest salary), but you'll have more time for compounding interest to work its magic.

5. Pay Yourself First

There are a lot of reasons to pay yourself first. Perhaps most importantly, it removes the element of choice — even if only artificially — from the act of saving. Setting aside money in a savings account, IRA, or 401K plan via automatic payroll deductions helps reduce the temptation to spend first and save later.

6. Know the Difference Between Assets and Liabilities

Here's the easy-peasy definition: Assets are things you own that have value. Your car, home, savings account, and coin collection are all assets. Liabilities are what you owe. Credit card balances, student loans, and car notes are all liabilities. The not-so-secret secret to success is to accumulate assets and reduce liabilities.

7. Avoid Consumer Debt

Don't let savvy credit card marketers confuse you: Your credit limit is not your spending limit. Avoid consumer debt and the nearly usurious interest rates that go along with it. The slow bleed of interest payments, late fees, and other charges will kill your budget and your prospects of achieving personal financial security.

8. Pay Debts With the Highest Interest Rate First

If you're unable to avoid consumer debt, be strategic in the way you pay it off. Knocking out high-interest balances first exposes you to less interest charges over time. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)

9. Don't Invest in Anything You Don't Understand

Investment success takes clear thinking, discipline, and consistency over time. Taking shortcuts and investing in overly complex products you don't understand threatens your long-term gains and capital. Stick with what you know, strive to learn more every day, and don't be spooked by cyclical fluctuations in the market.

10. Prepare for the Unexpected

Sock away six to eight months' worth of net income in an emergency fund. It's a simple, but effective way to weather a job loss, unexpected health issue, surprise household expense, and other life events that could threaten your family's nest egg.

Oh, and at the risk of wrapping things up on a melancholy note, remember that preparing for the unexpected also includes proper estate planning. Protecting your assets and providing for your loved ones is an often ignored golden rule of smart personal finance. If you haven't made a will yet, add it to your to-do list and to-do it!

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Reasons You Really Need to Pay Yourself First (Seriously)

Kentin Waits — Wed, 07 Dec 2016 12:00:11 +0000

It's a familiar refrain in the world of personal finance: "If you want to build wealth, you've got to pay yourself first!"

But what does paying yourself really mean and how can such an odd-sounding notion radically alter the course of your financial life? Paying yourself first simply means setting aside part of your income in a savings or investment account before you do anything else — before you upgrade your smartphone, buy new jeans, pay the utilities, or spring for happy hour drinks for your three closest friends.

Thinking of your savings plan as a bill you must pay on a regular schedule automates the act of saving and can build significant wealth over time. Still not convinced it's the path of personal financial security? Read on. Here are seven reasons you should pay yourself first.

1. It Sets Proper Priorities

What's more important than funding your future? What priorities eclipse your family's long-term financial security? Paying yourself first sets in motion an idea that's crucial to successful saving: I matter and I'm going to start acting like it. Remember, wealth-building doesn't happen by chance; it's the result of intention, consistency, discipline, and big-picture thinking.

2. It's Easy

Paying yourself first through automatic payroll deductions is a simple and pain-free way to save. The "set it and forget it" approach makes saving and investing easy because the money is redirected to a 401K, IRA, savings account, or other investment vehicle immediately. Why is that immediacy so important? Because it helps avoid that nagging sense of deprivation that's laid waste to so many people's best financial intentions.

3. It Taps Into the Power of Dollar Cost Averaging

With dollar cost averaging, investors buy a fixed dollar amount of a particular stock or investment, no matter what the share price. Because the investment occurs at routine intervals, that fixed dollar amount buys more shares when the price is low and fewer when it's high. This investment technique helps avoid the risk associated with dropping a lump sum in the market at a moment when share prices are high (a move that gets you less for your money).

4. What's Last Is What's Left

There's a name for folks who try to save only what's left over at the end of the month: They're called spenders. New wants and needs always have a way of creeping in and rapidly consuming any surplus. Paying yourself first — taking your savings right off the top, investing it, and efficiently managing the rest — is a far superior strategy.

5. It Builds Discipline

Paying yourself first by contributing a fixed amount of money regularly to a savings or retirement account builds financial discipline — a discipline that can be applied in countless other financial and nonfinancial ways. As with all habits, saving becomes easier over time. As you watch your wealth grow, you'll want to find new ways to cutback on expenses, increase your income, and save more.

6. It Creates a Healthy Work/Reward Cycle

Ever feel like modern life is an endless cycle of work-spend-repeat? An effective way to overcome that nearly universal sentiment is by starting a savings plan and watching your wealth grow. Paying yourself first creates a new cycle — one where all that hard work steadily increases your net worth, expands your opportunities, and offers a level of freedom that more stuff simply can't provide.

7. It Models Smart Financial Strategy

I've always been an advocate of discussing money with kids. Of course, you don't want to burden children with adult money worries, but it can be immensely valuable to model and explain effective money-saving strategies like paying yourself first, avoiding credit card debt, and living within your means. Encouraging a level of financial transparency demystifies the world of personal finance and helps kids build the practical money management skills that will serve them well in adulthood.

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Money Moves to Make When You Get a New Job

David Ning — Tue, 10 Apr 2012 10:00:11 +0000

Whether you are trying to change positions, find work again after a layoff, or simply start your career, it's easy to jump for joy when you get a job offer and forget all about your wealth for awhile. Yet, this is a great time to think about your finances, because taking the right steps now can really accelerate your asset accumulation. Here are seven items you should think about if you want to take your wealth to a whole new level. (See also: Starting a New Job: 3 Rules to Live By)

1. Negotiate Your Salary

This can be easier said than done, I know, but consider that any amount you can get is going to compound into every future raise, and anything you get now will affect your lifetime earnings significantly. At least negotiate until the employer says something along the lines of "we can't give you what you want, and we won't budge on our previous offer." Any other response likely means that there is some more room to push, and I've yet to see anyone retract their original offer if you respectfully asked for a bit more.

2. Get the Details on Company Benefits

Did you know that some companies will help you pay your mortgage? That's rare, but most companies have adopted government-encouraged plans like 401(k) matches, cafeteria plans, Flexible Spending Plans, and dental and medical coverage, which can save you thousands a year. Yet, most people seldom ask about these benefits when they are comparing potential job prospects. The inclusion of these plans can make a gigantic difference between the effective pay of a job offer, so take these benefits seriously.

3. Remember Your Former 401(k)

If you are moving from another job, remember to roll your 401k into an IRA or at the very least, move your former 401(k) into the 401(k) of your current employer. Don't be tempted to take it out, or else you end up forgoing all the benefits of a tax-deferred account.

4. Avoid Lifestyle Inflation

If you happen to get a raise by accepting a new job, you definitely won't be alone if you increase your spending. But most people haven't saved enough for retirement either, so don't try to keep up with the Jones in that department. By delaying lifestyle inflation even just one year, you can save much more.

5. Pay Yourself First

Schedule transfers to savings to occur when your paycheck hits your account. This way you won't be able to access the extra cash, and you likely won't miss it.

6. Shift Your Paycheck Into a Savings Account

When HR asks you which account you'd like your paycheck deposited into, provide the information for your online savings account and start collecting interest on day one. This used to work better when interest rates were much higher, but it's still better than nothing.

7. Make Sure You Are Withholding Enough

I used to say that you should never give Uncle Sam an interest-free loan by prepaying too much of your taxes, but I have come around. For one thing, you are losing just a tiny bit of interest. But more importantly, most people will take a psychological hit when they discover they have to pay additional income tax when filing their taxes, not to mention that a surprise like this could throw financial plans into disarray. That's why you should look at your W4 and make sure you are withholding enough to cover your taxes, as opposed to filling it out to get the least amount of taxes withheld.

This article is from David Ning of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Pay Yourself First: What It Means, and How to Do It

Debbie Dragon — Wed, 28 Mar 2012 10:24:29 +0000

If you have ever read a retirement planning brochure or any website about investing, there’s a good chance you have read the phrase “pay yourself first.” Some financial experts refer to this as the Golden Rule of Personal Finance! But what does it mean to pay yourself first, and how exactly do you do it? (See also: A Comprehensive Guide to the Debt Snowball Method)

Pay Yourself First: What Does It Mean?

This commonly used phrase refers to the practice of automatically making a savings contribution or investment with your income before it can reach your wallet. You “pay yourself first” when you contribute a percentage of your income to your retirement plan or savings account each pay period. The transfer to your savings or investment account is done automatically, before you receive the rest of your income for paying your monthly living expenses. When you pay yourself first, you ensure the specified amount of money you want to save really does make it into your savings account or investment, since it happens before you have the opportunity to use the money for something else.

If you don’t pay yourself first, you will probably find yourself at the end of each pay period or month without any money left over to save or invest. If you plan to save what you have after you pay your rent, groceries, loan payments, credit cards, and entertainment costs, there is a very good chance that there will be no money left after your expenses and discretionary spending. Making the decision to pay yourself first removes the temptation to skip a planned contribution and keeps your savings and investment goals on track.

Creating a system for paying yourself first establishes a priority for your savings and helps you develop strong financial habits. People who spend their money in the reverse order — paying everything else before saving — generally reach their retirement years without a nest egg.

Setting Up Automatic Savings Plans

The easiest way to make sure you save a percentage of your income each and every pay period is to pay yourself first with an automatic savings or investment plan. Consider your savings or investment another expense that you must pay, and set it up just as you would any other automatic payment made to one of your creditors. Then you can forget about it. The money is invisible to you, and you will learn to adjust the rest of your spending habits to the income you have after your savings or investments are made.

If you receive a paycheck from an employer, you can usually designate a certain percentage of each pay period to your employer’s 401(k) plan or to a savings account. Some employers will allow you to have more than one direct deposit created, which means you could contribute a specific dollar amount or percentage of each paycheck into your 401(k) plan, and a specific dollar amount or percentage of each paycheck into your savings account.

If you are self-employed or receive income sporadically, you can still take advantage of the “pay yourself first” strategy. Each and every time you receive income, deposit a specific percentage in a designated savings or investment account before you use the money for anything else. This requires more financial discipline than having your employer deposit the money before you get paid, but if you make it a habit, you can still pay yourself first and benefit.

Additional Tips for Paying Yourself First

The biggest challenge of paying yourself first seems to be the mentality of not making enough to save and finding it hard to get started. If you feel like you aren’t making enough money to save, try starting with a very small amount, such as 1% of your income. From every paycheck or income received, simply save 1% of the amount, each and every time. You will not miss this amount, and over time, you will have saved some money.

When you pay off existing debts and find yourself with more discretionary income each month, or when your income increases due to a pay raise or promotion, you should increase your savings percentage.

This article is from Debbie Dragon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Spend Less Without Starting a Budget

David Ning — Tue, 15 Nov 2011 11:24:48 +0000

Some of the most common advice for helping someone spend less is to start a budget, but this approach doesn't always work. (See also: The First Step to Budgeting)

With a budget, it's easy to get used to how much money you spend because you are so accustomed to seeing the total on a monthly basis. Instead of helping you spend less, you are actually training yourself that your current level of spending is necessary. Then there's the problem of actually doing the work. Many people who have budgets often forget to add up a receipt here and a receipt there, which makes the whole budget unreliable.

And in reality, having a budget doesn't automatically help you spend less anyway. Some people feel that as long as they see what they are spending money on, they will stop. This is just a pipe dream. It sounds obvious, but unless you take the effort to spend less on a particular habit — something you can do without a budget — your spending won't go down.

Try these tips to lower your spending without starting a budget.

Start From Scratch

This isn't easy for some people, as you can imagine, but eliminating almost all of your expenses and starting from scratch will help. What I mean is to treat every bill, every meal out, and all your automatic payments as expenses that you truly cannot afford. Once you scrutinize every detail of what you pay, you will find that part of your spending is on things you don't really care about, and you can start reducing.

Pay Yourself First, and Pretend You Have Less

The fastest way to spend less is to have less. When you have less to spend money with, you will find a way to survive. We obviously don't want to voluntarily decrease our income, so the closest thing we can do is pay ourselves first and then pretend we have less. That's why we should schedule our deposits to our retirement accounts the day we get our paychecks and to increase our savings amount every time we get a raise. If we don't get a chance to use it, we probably won't.

Pay Off Debt

Another way to lower your spending is to think of ways to work on your debt payments. From refinancing to moving debt around to lower your interest rate, there are many ways to reduce your debt in order to lower your monthly obligations. Don't forget about this side of the equation, because spending some time here can reap huge rewards.

Having a budget is good only if you have the discipline to keep up. As with everything else in life, there are more than one way to skin a cat.

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This article is from David Ning of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: