Savings: The Concept of Paying Yourself First

Cultivate the savings habit for unexpected financial expenses.

Learn how to save money by paying yourself first and building up cash reserves before you invest in stocks and shares. Cultivate the savings habit.

Do you have enough savings to meet unexpected financial emergencies?

….as inevitable as taxes and death, these emergencies, like replacing a faulty washing machine, car repairs, a new boiler and so on are part and parcel of our lives. The list is endless.

A fundamental principle of investment for the smart long term investor is the prerequisite to establish adequate cash reserves before venturing into stocks and shares.

You are better prepared to withstand the financial crosswinds  and meet these unexpected expenses when they duly arrive at the doorstep.

A saving philosophy will also protect your long term investments by avoiding capital losses if the investor is forced to fire sell investments at short notice.

Surveys……….

A recent survey showed that many USA households have less than $1000 in savings. 63% don’t have enough savings to cover a $500 emergency.

In the UK, a survey of 1000 households showed 20% have no savings. 12% had savings of less than £250. There are over 8 million people in this position.

The question then arises——-

Are you saving enough for the inevitable rainy day?

—-Also

Are you saving enough for your retirement?

Do you live from paycheck to paycheck, unable to make any savings, overburdened by bills, rent, mortgage payments and credit card payments?

This scenario is very COMMON in our modern society. However YOU can break it?

—–>How?

You can break out of the mould by cultivating the habit of paying YOURSELF first.

Learn to pay  yourself first when you receive your monthly or weekly payment.

Set up an automatic transfer from your check or current account to a savings account on the day you receive your payment. Pay yourself first before making other payments. Set up an emergency savings account and direct your  automatic transfer into it.

"Cultivate the habit of paying yourself FIRST"!!

—->How much should you save?

The usual financial advice is to save at least 10% of you salary. If you cannot save that much you can start with perhaps 1% and build up gradually. It may be tough and difficult at the beginning but you will learn to adapt by making adjustments to other areas of expenditure.

An adjustment an individual can make to build up savings is to spend less than you earn. There are some typical questions we can ask ourselves.

—–>Is that daily expensive cup of coffee necessary? Can I instead make my own coffee?

—–>Can I prepare my lunch at home without buying the expensive sandwich at my work canteen?

—–>Do I need to go on holidays this year paid for by a credit card?

Do these sound familiar?

Such minor adjustments can make a huge difference in your ability to save.

Secondly, avoid “lifestyle creep” – increasing your standard of living and expenditure in order to match your increased income. This is not an uncommon habit. Instead use your increased income to generate more savings and investments. Don’t spend it all.

Develop the habit of delayed gratification by building up savings to fulfil your dreams and avoid financing them with debt.

Lyn Alden, the financial blogger, has produced a useful inflation-adjusted matrix that will help you calculate how much you need to save to achieve your financial goal in 25 years.

Once set up, the automatic transfer into your savings account happens without you consciously having to worry about doing it. The amount may appear meagre initially but will build up as long as you maintain the discipline.

Learn how to save money and the concept of paying yourself first to build cash reserves.

Aim to save enough to cover at least six months of expenses.

Do not start investing in the stock market without having cash reserves and savings.

Stocks and and shares should form a significant part of a long term investment portfolio. You should not invest money you may need within five years.

Share prices can be volatile in the short term. You may incur losses to your capital by selling at short notice and may receive much less than you invested.

Have a cash buffer before investing.

Many people do not take the concept of paying yourself seriously and do not start saving early or  enough. It is perhaps the most important and fundamental financial lesson and principle everyone should embed in their psyche.

The cash reserves provide some freedom and security, reducing stress and worry when you have unexpected expenses.

They also provide a solid base for you to start planning to meet your financial goals including investing in stocks and shares for the long term.

Do not invest in the stock market until you have built up cash reserves.

Start putting away those dollars or pounds today and and watch your savings GROW. Anyone can achieve financial freedom and security but you have to actively plan for it. 

The formula is simple….

—–>> put money away each month in a disciplined fashion,

—–>>keep your expenses much lower than your income.

Do not procrastinate….. 

——>>Start TODAY to pay yourself first.

—–>>Start saving today for the opportunity to create a life of financial freedom and security allowing you to retire early and do whatever you want with your time.

You will also create a solid base from which to invest in stocks and shares using a long term investment strategy.

Chinedu Chiana

Chinedu Chiana is an Investor, Online Entrepreneur, Business & Financial Coach and Author of 'The Smart & Common Sense Investor'. He helps educate business owners and entrepreneurs on the skills and strategies to create, build and grow profitable online businesses. He reviews business software and digital marketing educational courses covering funnels, social media & email marketing, productivity, business automation and marketing advice.