Many financial experts seem to advocate paying off your bills before anything else.
While this idea works well enough for some (detail-oriented) people, many can only wonder why their savings comes last. It doesn’t make sense to pay all your bills … and then save whatever happens to be leftover. Instead, it makes more sense to save FIRST, and then force yourself to pay the bills with whatever is left over.
After all, savings is the money we pay ourselves. Perhaps if we could save more money upfront (instead of at the end), we would have more money. This is the idea behind the “pay yourself” budget.
#1. Know Your Gross Income –
As with all budgets, you need to know your gross income before you do anything else. This is the amount of money you make after taxes and businesses expenses. For example, if you make £3,400 a month but you bring home £3,000 after deductions, then this is your gross income.
#2. Calculate Your Savings Goals –
Next, decide what you want to save money for. This works best if you make a list for your savings goals on a monthly basis, since you already know how much money you have each month. For example:
? £200 a month towards retirement (£2400 a year)
? £200 a month towards emergency savings fund (£2400 a year)
? £100 a month towards a down payment on a house (£1200 a year)
? £50 a month towards vacation (£600 a year)
? £50 a month towards Christmas (£600 a year)
Add together all of the savings goals you want to achieve so that you know how much money to put away every month. For the above example, this would be £600 a month, leaving you with £2400 for other budgetary expenses.
#3. Craft the Rest of Your Budget –
Use the money left over after savings for the rest of your budget. Use this money to pay bills, buy groceries, or go on a shopping spree. It is not important what you spend this money on as long as you meet your savings goals every month.
Because the “Pay Yourself First” budget doesn’t focus on specific items the way many other budgets do, it works best for the types of people who don’t like small details bogging them down when it comes for budgeting. Instead of forcing you to account for every dollar, this budget makes sure you meet your savings goals first and then allows you to spend the rest of your money how you prefer.
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