One of the most famous personal finance quotes by Warren Buffett is “Do not save what is left after spending, but spend what is left after saving”.
This is excellent advice. But is it possible? Can I really save money and still have money left to pay bills?
In the last post, we discussed tracking your money and organizing your expenses into a spending plan. Now that you have that all down on paper how does it look? Do you have more money than month or more month than money?
At first, I had the mindset of paying all my bills then whatever I had left over I said I would place that into savings. HAHAHAHA! That never happened, I seemed to always find something to spend my money on, a want rather than a need, usually. Or some bill would come up that was either unexpected or forgotten.
You have heard the expression "pay yourself first", right? Let's talk about how to do that in a way that is not painful. It is easy to do, but might best be done in baby steps.
The first step to paying yourself is to check with your employer and ask if you have a 401K, 403B, or similar employer-sponsored savings account (ESSA). This is an excellent way to start paying yourself first. Many employers will match your deposits made, up to a specified percentage. Many employers will match what you put in up to 6%! This is FREE MONEY. If you are not taking advantage of your employer giving you money then you are missing out.
Employer-sponsored savings accounts are a great place to start paying yourself first. Why are ESSA's a good idea? Besides the possible free money that your employer may give you, the money that you contribute to the savings account is taken out of your paycheck before taxes are figured out, also called pre-tax money. This means that the amount of money that the government can tax you on is a lower amount.
In my case, as an example, my employer matches 100% of the first 6% I put into the account and 50% of the next 3%. So say my paycheck is
$500 and I place 6% ($30) of my paycheck into my ESSA account. Then my employer will also place $30 into my account. Then my income that the government can tax me on (also known as taxable income), is $30 less as well. Excellent!!
Another savings account that may be possible through your employer is a health savings account, also known as HSA. These are great also, and many employers will help you get them started by placing a dollar amount in the account for you each year. Again with the free money!! Wahoo!
The HSA money goes into an account and can be used for the high deductible on your health insurance and can be used for any other health-related expenses (be sure to read what expenses are included and what hoops you have to jump through to make them "legal").
HSA accounts have many advantages as
well. The money that is deposited into these accounts is also taken out of your paycheck pre-tax, and it can be moved into investment accounts so it becomes an account that is similar to an
ESSA account and grows in investments like an ESSA account.
I try to no use my HSA money unless it is a large expense that I can't pay for. I do this because I want that money to grow. The money in an HSA does not have to be used and can be used however you wish after the age of 65.
Both ESSA and HSA's are an excellent way to start paying yourself. Because they are pre-tax you hardly notice the money coming out. I think of it like this, I would rather pay myself than pay taxes to the government. And it is automatic, so there is no thinking about it, you start saving before you spend just like Warren Buffett said in the opening quote.
Simple first step, right? You got this, and you are one step closer to retirement saving and paying yourself 1st! Yay You!
Leave comments and questions below in the comments section and until next time...