Sunday, 10 January 2016

Paying Yourself First

Hi friends! Do you think that having a pile of cash on hand will be useful? 

Regardless of whether it functions as a tool to generate more income, or to function as your emergency stash for rainy day, having cash savings on hand will be useful, wouldn't it?:) 

BUT! Are you always left with just dimes and pennies at the end of the month, without making any saving? If so, you are just like me many years back when I was a teenager.

After some time, I kinda grew sick of seeing an empty bank account all the time. So I decided to open another bank account which I termed my "savings" account. This account is where I immediately deposit a portion of my income (usually 25%) into once I receive any income. Additionally, if I receive any extra income, such as dividends or bonus, I will also deposit 90% of it into the "savings" account at once.

Once the monies have been deposited into my "savings" account, it will not be touched except for investment or education usage. 

All discretionary spending, such as dating, movies, eating out and daily expenses, will be covered by the monies I have in another account, which I termed as my "spending" account.

Surprisingly, after some time, I realized that this method of saving has a terminology ("Paying Yourself First") dedicated to it and it is in fact, a very popular saving method advocated by peoples who are financially literate.

So how has this method of saving helped me, a sandwiched middle-class citizen residing in Singapore, considered the world most expensive and yet exciting country to live in.  

Well, for one thing, in terms of measurable benefit, I can see how my savings are growing consistently throughout the years. This is definitely much better than seeing an empty bank account at every months end, all the time.

However, it is the intangible benefits of this saving method that appeals to me more. By putting aside my monies into my "savings" account even before I have the chance to spend it, it means that:

  • I never ever have to fret that I will sub-consciously over-spend and end up not being able to save;

  • I can spend however much I want, as long as I still have monies in my "spending" account;

  • I have a darn good reason to say "NO" to purchases or events when the monies in my "spending" account is getting low ('s easier to decline invitation to eat out when you claim that you are broke);

  • I am happier as I see my "savings" account grows;

  • I am more motivated to save more monies when I see my "savings" account grows;

  • I do not have to worry that I will end up broke yet again at months end, and thus being unable to save.

So how's that for the benefits of paying yourself first when you get your paycheck? :D Want to give it a try?

It's easy to start this saving habit. All you have to do the next time you have monies coming your way is to immediately put aside a portion of it (maybe 25% for a start?) into a dedicated account. 

In fact, it can be even easier and convenient with the automated services the banks are providing nowadays. Check with your banks on setting up an automated transfer to your "savings" account on every payday and you will have made a good start on your journey to financial independence! :D    

Street art. Oriental style. Photo taken along Jonker Street at Malacca, Malaysia.

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