Isn’t it annoying how money doesn’t seem to last as long as it should? Payday is such a happy day – money comes in, but somehow doesn’t quite last as long as you want. I mean, you’re doing all you can to become financial savvy in college (including all 14 of the previous College Money Tips!), so why isn’t there any money left over?
Let me tell you two personal finance secrets, one you may have heard, and one you probably haven’t. You may have heard:
Pay Yourself First
“People” (personal finance “gurus”) say “pay yourself first!” as much as they can. What they mean is: when you think of “savings” (as in, moving your money into a savings account), you should think of it as a bill. And not just any bill – your most important and pressing bill. When you get a paycheck, your savings should be the very first bill that you pay.
This elevates you, your life, and your goals to Priority #1, above everything else that pulls at your cash. Good news, right? Well, yes, in theory. But here’s the other secret, the one most people don’t mention:
“Pay Yourself First” Doesn’t Work for Everyone
Yeah, it’s a great idea. But many people have dug themselves into such deep financial holes that “pay yourself first” is just a pipe dream. “Pay the rent/electricity/water bill first!” is a better mantra for many people.
But… here’s a bonus third secret for you: You, as a college student, are not one of those people.
“Pay Yourself First” Might Actually Work for You
You’ve got fewer bills, and your biggest bills are likely to come only once per term: tuition, room and board. Right now, before you have bills tugging at your money from all directions, you have a better shot of putting away a little money from every paycheck.
So give it a try. Pay yourself first. Pick a percentage – 10% is good, but so is 20% or 5%. Whenever you get money – from a paycheck, birthday, or whatever – take that percentage and put it away in a savings account. You’ll be surprised at how quickly it adds up. (Remember: savings work best when you have a plan for your savings.)
If you start now, you might just be able to make “pay yourself first” work, and be able to keep it up, even as you get older and those “real bills” start to come after you.
I completely agree with you on the whole idea of paying yourself first. I’m not sure if its nurture or nature for me. Maybe it is the jew in me that likes to save money but at the same time my first savings account was in elementary school! My parents gave me money each week (~$5) that I could either spend at the school (junk) store or put into my savings. I always put at least 50% of that money into my savings. I continue this practice with my real paycheck, I put as much as I can into savings or retirement.
For those in deep financial holes, you should consider paying down debt as paying yourself. It’s as good as (and often better if it’s high interest debt) to pay down debt than putting that money in a savings account.
I’m very lucky in that I’m able to pay myself first every month. In fact other than my 401k deduction (10% of gross), it’s my only automated deduction from my income. All my other bills I pay myself, mostly online. This automated savings is 9.2% of my net income a month. Then if, at the end of the month I end up with extra money as a result of living frugally I kick that into the savings account as well. But no matter what, unless there’s a real emergency, that 9.2% a month is stashed away.
This is largely possible because I have no debt and live a bit on the cheap side (being that I don’t have particularly high income so far). I have no student loan or credit card debt. I don’t have cable TV, and I live in a sufficient but slightly crummy apartment.
So I definitely give up some things in order to save. But it’s well worth it.
Very good advice here, I will have to show this to my son, which is 22. He has a hard time saving and I try to get him to understand that saving is necessary for his future.
I, personally, have been to the point of bills first, then paying me, but we are back on track and I can pay myself first now. It is nice to know there is a little stashed away for a rainy day.
I don’t know how many times i’ve told me friends this! even if it is 5 dollars a pay check. If an emergency comes up it’ll be something that you have saved in an EF rather than having to put it on a credit card and add to the debt you may already have.
I wish I would have done it in college, but now a few years out (sort of, i’m doing the night class thing for a different degree) I wish I would have started my saving earlier!
Very nice article.. i completely agree with you that we need to pay ourselves first.. this is the thumb rule for anyone hoping to achieve financial independence . One of reasons why rich people are rich is because they do follow this thumb rule to teh T.
Works well. Thanks again for this well written article.really loved it.
Pay God first before we pay ourselves. 10% is a good idea.
What great tips! I really wish I had heard this when I was in college. It would have helped create a lifelong habit of saving.
Once you start saving, it’s amazing at how quickly even just $10 a week can add up.