Pay Yourself First: A Financial Blueprint for Ambitious Parents

It is the perfect time to reflect on our financial habits and set the stage for a prosperous future. In this blog, we'll delve into a fundamental principle that can transform your financial landscape – "Pay Yourself First" This simple yet powerful concept involves prioritizing your own financial goals before anything else. By establishing a plan to pay yourself first, you can build a strong foundation for financial success and achieve the milestones you've set for yourself.

"Pay Yourself First" is more than just a catchy phrase – it's a mindset that can revolutionize the way you approach your finances. What does it really mean? Investopedia describes it as “routing a specified savings contribution from each paycheck before you begin paying your monthly living expenses and making discretionary purchases”. ?In other words, fund your personal goals first, then use what is left over to pay for your needs and optional spending. By doing so you can be assured that your goals take priority.

To effectively pay yourself first, it's essential to create a structured plan. This involves allocating a portion of your income to dedicated accounts for specific financial goals. Whether it's an emergency fund, retirement savings, kid’s education, or a dream vacation, allocating funds to separate accounts will help you stay focused on each objective. Don’t delay starting your plan for a time when you can afford to fully fund each goal. It is better to start small and increase the amounts over time to get in the habit of seeing the money go to these separate accounts you have set up. It doesn’t have to be an all or none situation.

While the concept of paying yourself first is straightforward, implementing it can sometimes be challenging. Which goals do you fund first, and if you can’t fund all of them, do you only fund the ones you can or should you only fund 50% of each goal? Everyone thinks about these things differently. I would choose to fund a percentage of each goal so you could see how close you are to each of them. Then review each goal and adjust them if you want to reach one of those goals faster. If you must put off a car purchase or vacation for some period, that may be the best thing for you from a financial perspective. Unexpected expenses, and emergencies can be deflating when it comes to reaching your goals. These things can happen. Try to keep yourself from giving up because of it. Move on and move forward.

As we all know, the sooner you get started, the more compound interest can help you and the less money you must use to fund those goals. The goal of paying yourself first is to build a sustainable financial future. From achieving financial independence to realizing your dreams, paying yourself first lays the groundwork for a secure and fulfilling life. Other goals people focus on include cars, weddings, second homes, investment properties, businesses, gifts, and giving to charities. Whatever your goal may be, paying yourself first, is a great way to ensure that you meet those objectives.

I am a big proponent of saving early for your kid’s education. Thankfully there are multiple options to do so. 529 accounts are an obvious choice and give parents some flexibility thanks to the SECURE Act 2.0. Roth IRA accounts are also an option for you. I love using Roth IRAs for the fact that you can use them for your own retirement but can also choose to use them for your kid’s college expenses if you like. Of course, every situation is unique so work with a professional to decide what works best for your needs and situation.

Taking control of your financial destiny starts with paying yourself first. By making your goals the top financial priority, you're ensuring that your aspirations take precedence over other expenses, including whimsical or spontaneous purchases. Make 2024 the year you prioritize your financial well-being and set the stage for success.