So, the other day I was asked the following question:
What savings and/or investment strategy have you applied that has been a success?
My answer came fast, Pay Yourself First:
There are three steps to make Pay Yourself First (PYF) work.
Step 1 is
to create a budget to prove what surplus cash COULD be available at the end of
the month. For me, this budget is reasonable but should also favor
semi-aggressive savings. This is why I don’t like super itemized budgets that
cover such things as wrapping paper costs each month. While I am a control
freak and generally like lots of detail, I can’t handle that level of budgetary
detail in my finances.
Step 2, once a budget has been created and you know how
much money you should have at the end of the month this amount is set up as an
auto-draft at the beginning of the month. Again, personalities play a big part
in the success of a specific type of financial practice. For example, I don’t
like moving money from my savings account back into the checking account. So if
there is a purchase above a budgeted amount that has to be transferred back
into the checking account.
Step 3, after $1,000 has been accumulated in the savings
account any additional funds can be transferred off into higher interest
earning accounts to develop wealth.
