Money Smarts

“Paying yourself first may sound weird but you should set aside money each month specifically for your savings or investments before spending anything on bills, food and unnecessary items. Why would you want to do this? 1.) You can’t spend what you don’t have.”

Paying yourself first may sound weird but you should set aside money each month specifically for your savings or investments before spending anything on bills, food and unnecessary items.
Why would you want to do this?
1.) You can’t spend what you don’t have. This would limit the amount that you have to spend on habitual items such as fast food, beverages and other items that are impulse purchases. This will make you a more responsible spender.
2.) It motivates you to find ways to earn more money if funds do run low and you need more funds. This opens your mind to find new routes of earning an income.
3.) Compounding Interest. In any investment account or interest bearing accounting (such as savings, money market account, etc.), the power of compounding interest is phenomenal. If you save or invest today, it will be worth far more in the future due to the compounding effect.
4.) Tying in with the first reason, this allows you to be more mature in your spending habits. This will help eliminate wasteful items that aren’t truly necessary. One will be surprised on what they are actually spending money on!
5.) This safe nest that you have started will be there in case of a dire situation such as: tuition payments, car situation, housing problems, medical bills, etc. Having this safe nest egg will help bring peace of mind and can be readily accessible. For an emergency purpose safe fund, an interest bearing savings/checking/money market account is the most effective and provides easy access to these funds.
Paying yourself first can be very powerful and you will be extremely to see the effects. Plus, why bother working to have nothing to show for it at the end of the day or end of the month? By paying yourself first, you are rewarding yourself from all of the hard work that you had to go through to receiving your funds.
So when you receive money, make sure you give yourself a percentage of that amount and save it into an interest bearing savings account, money market account or other investment item that you prefer.
Lanny Berlingieri is a current MBA finance student and holds a bachelor’s degree in Accounting from the University of Akron.
Berlingieri is involved in campus organizations Beta Alpha Psi, Accounting Association and Student Toastmaster.