Paying yourself first means setting aside a percentage of each paycheck for savings before spending. It’s important to start saving early and put the money in a separate account or invest it. Retirement accounts like 401K or IRA can also help save money before taxes. A good rule of thumb is to save an amount equal to at least one hour of work for every eight hours.
You may have noticed money coming directly out of your paycheck before you even receive it, at least in the United States. The government understands the concept of paying yourself first, or paying yourself first, taking taxes out before you get your income. However, this concept can also be used to your advantage by applying it to save money.
Paying yourself first simply means automatically setting aside a certain percentage of each paycheck for savings, before you do anything else with your money. If you don’t pay first, there will always be something you could spend money on instead of saving it. There never seems to be a perfect time to start saving money, so you just have to jump in and do it.
After you get used to the first concept of paying yourself, you won’t really lose money. It’s a good idea to put that amount in a separate account, so you’re not tempted to spend it. You may want to invest a little or just put the cash away in a high-interest savings account for your retirement.
Planning for the future is very important, and the sooner you start saving, the better. If it’s paid off first, you know you’ll have a certain amount in several years. There are many low-risk investment vehicles you can experiment with to increase your retirement savings. Even if you already have a pension or other retirement fund, it’s a good idea to pay yourself first to build up more money for the future.
Some types of retirement accounts will even allow you to pay yourself first before the government. Various accounts such as a 401K or an individual retirement account, more commonly known as an IRA, may allow you to deposit a certain amount of money, before taxes, or you can deduct that amount from your taxes.
You are probably wondering how much is a good amount to pay yourself first. A good rule of thumb is to pay yourself an amount equal to at least one hour of work for every eight hours. If you don’t earn an hourly wage, you can easily calculate a rough estimate of how much you should save. Divide your annual salary by fifty-two weeks, and then divide it again by the approximate number of hours you work per week, and then divide by eight.
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