F**k you, pay me! A great line from Goodfellas. This is the mindset you have to have for yourself. You need to pay yourself first. If you don’t pay yourself first, and you wait until the end of the month to pay yourself what is leftover then you eventually won’t have anything left. You will end up spending that money on something that doesn’t matter and isn’t important. This is another reason to have a budget. By having your budget, and having your monthly income and expenses already planned out, you can figure out how much you can pay yourself.
What do I mean by “pay yourself?” This is the money you set aside for things you need such as paying down debt or putting into savings or investing. This is important. Number one priority is to fund your emergency fund. You need a thousand dollar emergency fund. Why you ask? Because something is always going to come up that is not in your budget. I’m not talking about that new shiny object that you want…new watch, a new purse, new clothes, that video game you have been waiting to come out. I’m talking about actual emergencies. The unexpected big thing that happens, like needing a new tire because you had a blowout, or your dishwasher broke and needs to be replaced.
Second priority after your emergency fund is to pay off your debt. Debt is the killer. You are paying someone else your hard earned money instead of putting that away for yourself. So pay down your debt, smallest to largest, paying the most you can every month towards the smallest debt you have. Once you pay that one off, move to next smallest. This method is the called the debt snowball. I will go into more detail on this in another post.
So after you are debt free, then what? You need to drop the hammer, punch it on your savings. I would suggest bumping up your emergency fund to 3 – 6 months of expenses. This will be your buffer for any major issues that might arise. Once you have that set-aside, now it’s time to have laser focus on really throwing everything you can towards your retirement accounts. Max out your 401k or whatever company retirement account you have. Start and max out a Roth IRA account. If you are married, open one for each spouse. The sooner you can get these accounts starting and really throwing any extra dollar you can at this, this faster your money is going to grow…EXPONENTIALLY! You can also look at other avenues to invest in your retirement portfolio. Real estate is a great way to go as well. Buy a rental property to add to your portfolio, just do some homework first. If you are interested in learning more about real estate investing, check out The Bigger Pockets podcast here, https://www.biggerpockets.com/podcast.
The takeaway, pay yourself first. Set aside how much you have left every month after paying your monthly expenses, and any debt. Get on a budget so you know how much you have available to pay yourself. Be intentional with your money! Get after it!!!!