Fund Your Portfolio with the "Pay Yourself First"Budget
There might have been a more challenging time to make it in the U.S. But we (the current generations) have likely not seen it. Even people with high six-figure incomes often end up living paycheck to paycheck. A Happy Meal is no longer happy. So, it may seem insensitive to suggest you can save money for investing in your current situation. However, most of us could manage our income better, even in the tightest financial times.
Fortunately, ?there is an effective way to help you optimize your spending and budget habits. The “pay yourself first” budget is a simple way to instill responsible spending and cost-cutting in your monthly routine. This article will help you determine whether the Pay Yourself Budget” can work for you.
What is the “pay yourself first” budget?
The “pay yourself first” budget is a straightforward method of managing your monthly financing to save money for investing, emergencies, retirement, or whatever. It has only one requirement: setting aside a portion of your earnings for investing before you do anything else with your money.
If you follow this routine every paycheck for a few months, the habit can become routine and an asset to your budgeting without you hardly realizing it. This method helps naturally conform your spending habits to adjust to the remaining money. At the same time, “pay yourself first” ensures you contribute a fixed amount to your investment fund every paycheck cycle. It also reduces the temptation to spend the money earmarked for investing.
Why is “pay yourself first” effective?
Paying yourself first may seem like a new concept to your finances, but this type of transaction most likely occurs without you realizing it. For example, here are some instances when parts of your income immediately become unavailable.
All of these transactions effectively prioritize specific financial purposes over other expenses. A “pay yourself first” budget can be just as successful in building your investment capital.
How to set up a “pay yourself first” budget
Fortunately, several simple ways exist to establish a “pay yourself” method. The simplest way is to open checking and savings accounts separately. Then, set up a direct paycheck deposit, designating a certain percentage to your savings account while sending the rest of your income to your checking account. To ensure that your savings funds don’t merge with your spending funds, avoid withdrawing money from your savings account to pay for other expenses.
Most online brokers allow you to set up an automatic monthly money transfer from your bank account to your brokerage account balance for amounts as small as $25. Since transferring funds from your broker account to your bank account takes more time and effort, this technique may be more effective than a separate bank savings account. Also, if an emergency occurs, you can easily shut off the automatic withdrawal in the account setting on the broker’s website.
How much of your income should you pay yourself?
Ideally, you should set aside 10 to 15% of your income for investing. This amount may be unrealistic for you at present. In this case, earmark as much as you can afford until you reach that level. The fact that you’re gaining control of your budget may help you allot more money to invest over time.
You can calculate a budget to arrive at a manageable amount to set aside for investing by taking these steps to get a clear view of your net income.
Streamlining your expenses
Once you can see your budget before you, you must be honest with yourself and decide whether this is a plan you can live with comfortably. If you have doubts, review your expenses to see where you can cut with little sacrifice. Here are some potential ways to streamline your expenses.
Canceling of useless prescriptions
?You may have non-essential subscriptions to various media and services that you may have forgotten about. These unnecessary subscriptions to TV streaming services, newsletters, and clubs drain your cash supply while offering little or no benefit. For this reason, it pays to go through all your subscriptions to seal off these money bandits. You can also look for cheaper alternatives for the subscriptions you want to keep.
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Eat more and reduce home delivery
The thought of cooking after a hard day of work may seem unattractive. However, there are so many meals you can make in 30 minutes or less. You can also prepare big dishes on the weekend and store them in one-meal containers in the freezer for weekday meals. This change alone could save you hundreds of dollars a month.
Shop with a list
A thorough shopping list is an effective way to save money at the grocery store. This habit helps you avoid overspending on unnecessary food items, improve meal planning, and reduce impulse buying. You can even find shopping apps to help you, some designed to help you find the best prices. Also, it helps to plan your meals for the week before you go shopping with your list.
Avoid buying on credit and reducing your credit
A recipe for a financially stable and prosperous life does not include credit card debt. Take my word for it. I’ve been down that road. So, I know how important it is to reclaim your financial power by reducing your debts. Although it may seem impossible, you can do it if you focus on changing your spending behavior. ?
You can start by freezing your cards, except for one for emergencies. Another effective thing you can do is make higher payments on the card with the highest balance until you pay it off. Then, do the same thing with the card with the next highest balance.
Finalizing your “pay yourself first” budget
When you are satisfied with your budget, you can turn on your automatic payment systems to start your “pay yourself first” budget. Set the transfer settings so your investment funds don’t mix with your other funds or linger in your checking account more than necessary. Knowing you are making a power move for your financial future is such a great feeling.
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