As a CERTIFIED FINANCIAL PLANNER® I talk to clients regularly about the importance of living below their means. I understand that on the surface it sounds easy but in reality for some its very difficult. Either they don’t make enough money, or they have taken on to many bills… and just can’t get ahead.

My standard recommendation for most clients to fix this problem is to track spending for 30-60 days, review it and then cut out the fat! ( I have previously written about this topic here.)

If that doesn’t work, another option is to listen to the general advice you have heard over and over again “Pay Yourself First.”

Pay Yourself First

Paying yourself first is the process of saving the first dollar of your paycheck, then payiing your bills with the balance!

You begin by deciding on an amount you know you can start saving today.

Is it $50/month, $100/month, $1,000/month? and start doing it.

Typically, your life will adjust without that money. Either you will go out dinner 1 less time or pay more attention to your black hole spending!

Then every 6 months increase it by $50 or double it, or something else significant.

But you must raise it on a regular basis! The optimal strategy is to set up automatic deductions from your paycheck to your savings account. Multiple employers will allow you to direct deposit to more than institution, so don’t be afraid to ask!

When that savings account grows above and beyond what you need for emergencies (could be $10,000 or $50,000 etc) start investing the surplus for your future.

Another way to pay yourself first is to take advantage of your companies retirement plan. Those contributions will come directly out of your paycheck too, giving you a net amount of money to spend.

It’s in your best interest to do both. Save in the retirement plan and increase your regular savings too!

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50/30/20

I bet at this point you are wondering, well when do I stop increasing it? There are countless articles written on this very topic!

How much should I save at every age

How much should I save every month

How much of my pay should I save
(none of the links are endorsed by IFS Securities)

They all mostly subscribe to the 50/30/20 rule. Which is to spend 50% of your budget on essentials, 30% on lifestyle choices and 20% on savings. And that 20% should be deposited first! By doing it this way, the 80% you are left to spend will have to adjust to the dollars you have available.

If your credit card debt starts to rise, time to go back to the drawing board. Also, by giving your self limits, you can truly figure out what’s important to you.

To reach 20% of savings maybe you have to give up that weekly trip to Whole Foods or scale back your cable bill from the “Every Channel” package. But at the end of the day, it’s your choice.

Imagine I was recommending doing something even more extreme things;

Like eat 20% less, work 20% less, or have 20% less fun.

Saving 20% of your income is for your benefit!

Bottom Line

You need to save more money. Pay yourself first, so you can secure your financial future. Allow your bills and lifestyle to adjust to the amount of disposable income you have. Spend 20 mins this weekend putting your spending/saving into buckets and see how close to 50/30/20 you are .

What do you have to lose?

As always, you can consult with me to discuss how to get your financial life on track

Look for future posts on investing and saving and check out my recent post on estate planning.

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Thanks for stopping by and I hope you achieve financial success!