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Thursday, September 10, 2009

Don't forget to pay yourself first...and last!

To pay yourself first means simply this: Before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. The first bill you pay each month should be to yourself. This habit, developed early, can help a person build tremendous wealth. Being Broke Sucks advises you to Get Cramer's best stock picks & his latest bestseller FREE.  To learn how, CLICK HERE
It will help you in paying yourself first.

Why pay yourself first?
 If you’re just getting started in the Real World, saving may seem impossible. You have rent, a car payment, groceries, and maybe student loans. Sure, you’d like to save, but there’s just no money left at the end of the month. And that’s the problem: most people save what’s left over — left over after bills and after discretionary spending.
But if you don’t develop the saving habit now, there are always going to be reasons to delay: you need dental work, you want to go to Mexico with your friends, you aren’t making enough to pay your bills. Here are three reasons to start saving now instead of waiting until next year (or the year after):
  • When you pay yourself first, you’re mentally establishing saving as a priority. You’re telling yourself that you are more important than the electric company or the landlord. Building savings is a powerful motivator — it’s empowering.
  • Paying yourself first encourages sound financial habits. Most people spend their money in the following order: bills, fun, saving. Unsurprisingly, there’s usually little left over to put in the bank. But if you bump saving to the front — saving, bills, fun — you’re able to set the money aside before you rationalize reasons to spend it.
  • By paying yourself first, you’re building a cash buffer with real-world applications. Regular steady contributions are an excellent way to build a nest egg. You can use the money to deal with emergencies. You can use it to purchase a house. You can use it to save for retirement. Paying yourself first gives you freedom — it opens a world of opportunity.

Most poor people do not have a checking or savings account.  

When they receive a paycheck, they rely on corner stores or check cashing points that charge fees or a % of the face value.

Most poor people do not have a washer & dryer in their homes.

They have to drag baskets of clothes to the laundromat and spend half a day doing loads of laundry every week.

Most poor people do not have the disposable income to furnish their homes.

They rely on “rent-to-own” businesses that charge 2x the regular price with convenient weekly payments.

Most poor people live in less desirable neighborhoods.  

  • Thriving businesses avoid these neighborhoods, so poor people rely on convenient stores or mom & pop shops for their basic food/hygiene needs.  These are usually small businesses, resulting in limited selection and higher prices.
  • Homes in these neighborhoods are usually older, in need of repair, lack proper insulation, roofing and windows.  As a result, the utility bills are 2-3x higher than average.
  • Higher auto insurance premiums as a result of crime stats.

Most poor people do not have the disposable income or credit to buy a reliable car. 

They may resort to a “buy-here-pay-here” dealer and end up with a lemon that cost an arm and a leg to fix.  If buying from a reputable dealer, the loan may have unfavorable terms and a higher interest rate.

Most poor people have been caught up in payday or car title loans that charge 200% APR (or more) to borrow a few hundred dollars for two weeks.

It’s a never ending cycle that, apparently, is widely accepted as a way of life

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Pay Yourself Last

During the month we make a game out of trying to best our budgets for the various spending categories we have setup.  Things like food and entertainment are areas where we are typically able to come in under budget, and when we do we sweep that money into our emergency fund to continue building it towards our goal of 6-12 months of expenses.  In the past, we have also used this extra money to boost our debt snowball payment.  The idea is to reset that checking account before the next month starts, and to account for any remaining money by putting it to work for us, rather than frittering it away in miscellaneous spending.
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