Overview of Saving
Paying yourself first means that when you get a paycheck, tax refund, cash gift, or other money, you should put some of that money in a savings account before you pay your bills.
There are many reasons to pay yourself first. You can save money toward goals you have identified, improve your standard of living, learn to manage money better, and have money for emergencies.
Some major expenses people save for include:
- Costly unplanned expenses, such as a car repair or medical bills
- Loss or reduction in income
- Down payment for a house, a car, or other large purchases
What You Can Do To Start Saving
Many people spend all of the money they make. However, saving money is important – even if it is just a few dollars. You may think you do not have enough money to start saving. What are some things you can do to start saving money?
- Differentiate between spending for needs and wants. Cut back on unnecessary spending, such as food, monthly subscriptions, and other subscriptions.
- Pay bills on time to avoid late fees.
- Shop around, including for financial services. Consider opening a checking account instead of using check-cashing services. Shop for the account that best meets your needs.
- Monitor your bank accounts to avoid fees. Keep track of how much money is in your checking account. Don’t forget to record debit card purchases.
- Have part of your paycheck direct-deposited into a savings account or ask your bank how to establish automatic transfers to savings.
- Keep making the monthly payments to yourself once you have paid off a loan.
- Save at least part of any cash gift, bonus, or raise.
- Consider needs versus wants. Think about the items you purchase on a regular basis. These add up. Where can you save?
- Do you eat out at restaurants a lot?
- Can you cut back on daily expenses (for example, coffee, candy, soda, or cigarettes)?
- Do you have services you do not really need (for example, cable television)?
- Use direct deposit or automatic transfer to savings.
- When you get paid, put a portion in savings through direct deposit or automatic transfer.
- If you have a checking account, you may sign up to have money moved into your savings account every month. What you do not see you do not miss!
- Pay your bills on time. This saves the added expense of:
- Late fees
- Extra finance charges
- Disconnection fees for utilities (for example, phone or electricity)
- Fees to reestablish connection if your service is disconnected
- The cost of eviction
- Consider opening a checking account at a bank instead of using check-cashing stores.
- You might pay 2 percent or more of each check you cash. Two percent of a $500 check is $10. This can easily add up to several hundred dollars in fees every year.
- Put some money into a savings account if you get a raise or bonus from your employer.
- Keep making the monthly payments to yourself once you have paid off a loan. You can save or invest the money for your future goals.
- Save at least part of any cash gift you receive.
- Avoid debt that does not help build long-term financial security, including: loans for a vacation, clothing, and dinners out in restaurants. Examples of debt that helps build long-term financial security include:
- Paying for college education (for you or your child)
- Buying or remodeling a house
- Buying a car for work transportation
- Pay off high-interest credit cards or other loans as soon as you can.
- Save your change at the end of the day and deposit it weekly or monthly.
- Save as much of your tax refund as possible. Choose to receive your tax refund via direct deposit. You can split it between a maximum of three different accounts (for example, checking and/or savings accounts).
- Join a retirement plan (401(k) or 403(b) plan) if your employer offers one and deducts the money from your paycheck! Most employers will match up to $.50 of each dollar you contribute. The matched amount is free money!
- Do your homework if you decide to purchase investments. Know what you are investing in and get professional advice if you need it. You should have at least two to six months of emergency cash savings before you begin investing in investment products that are not federally insured.
- Reinvest the dividends of any stocks you own to purchase more stocks. Some companies offer an easy way to do this called a Dividend Reinvestment Program (DRIP). This process grows your investment faster, similar to compounding.
- Join an investment club if you are interested in learning about investing. Investment clubs are groups of people who work together to understand the process and value of investing even small amounts of money (as little as $5 to $10).