You wake up five days a week and go to your job. You work hard, spending eight hours a day, 40 hours a week, on average, trying to make enough. Perhaps you have arranged a carpool to save money on gas, and maybe you even clip coupons to help with the cost of groceries. You make the rent, or the house payment, and then try to buy yourself a little reprieve from the stress of it all by treating yourself to a new pair of jeans, or dinner out with the girls. Then, inevitably, you have to go back to work and start all over again.
So how, if you’re barely scraping by, can you expect to save money for a rainy day? The truth of the matter is, you can’t afford not to.
With unemployment hovering at an all time high, and cost of rent and retirement on the rise, it is imperative, dear reader, that you pay yourself first. How? By backing into your monthly expenditures only after you have taken a percentage off the top for your retirement account/IRA and rainy day fund.
For example, let’s say you walk away from work every month with a $200 paycheck. Before you sign up for a lease on your apartment or buy a gym membership, take 10 percent, in this case $20, and put it directly into your IRA. Then, take another 5 percent, or $10, and put that into a rainy day savings account. At this point, you should calculate your remaining expenses based on a take home pay of $170. That means your rent, which should comprise 50 percent of your take home pay, can only be $85 per month. And you should be able to afford all of your other expenses with the remaining $85 per month. Bills and gas and groceries and yoga and travel and dinner out with the girls…all of it.
The beauty of this simple habit, if you create it now and stick to it for the rest of your working life, is that you will be able to afford retirement. You will not be overwrought with stress if you should end up without a job for a period of time, and you will never bite off more than you can chew. By paying yourself first, you are protecting yourself, honoring yourself, and loving yourself enough to know that you deserve to be able to take a break when you need it. The reason most people go into debt, or find themselves without enough money to pay the bills, is because as their income grows, so do their expenditures. By employing this strategy, you are certain to always have enough should a rainy day come your way.