Paying Yourself First is one of the keys to long-term savings, being able to retire some mythical day, and being able to make ends meet in a pinch. Having the necessary means to survive a rainy day or in some cases rainy months or even years.
I recently read advice from Suze Orman, who dispelled the notion of having six months worth of living expenses saved up for the proverbial rainy day. She advises having eight to twelve months just in case.
"You need as much money in the bank that makes you feel secure," Orman reiterates. "Don't go fooling yourself, 'It's okay, I can charge on a credit card, I can do this.' You should have at least eight months. Not six months, not three months, I'd like to see you have eight months to one year."
That applies well to Yours Truly Money Mensch, as I work in the field of economic development, which has been in contraction mode in the Chicago area over the past ten years since the inception of the Great Recession.
Jobs in this field are relatively plentiful in business-friendly southern states that are not plagued by the overwhelming tax and regulatory burdens that we have here in the Land of Lincoln. I would not feel so stressed if we lived in Florida or Texas, but we do not and most likely never will.
The economic development function in many Illinois municipalities has been absorbed into other job titles, farmed out to contractual consultants on a year-by-year basis, relegated to public/private organizations or, in some cases, eliminated altogether. Mind you, actual economic development has been increasing greatly; I'm talking about the profession. As local governments continue getting squeezed by the State, economic development is not considered to be as critical a position as core services like public works and police.
Ironically enough, my plan for about seven years from now after hopefully qualifying for my IMRF pension is to be one of these hired gun consultants with a one- or two-year contract here and there.
Who wants to be at the same town trying to accomplish the same thing for as many years as I have?
I take Suze Orman’s advice seriously, along with advice read or heard from numerous other sources. When it comes to other pieces of advice that she has given lately, I strongly disagree with one and only partially agree with another. She has certainly stirred up the FIRE folks, but more on that next post.
That is why I have continued Paying Ourselves First, rather than just Paying Myself First, but it is the same concept.
For our daughter, I automatically pay $400 into her Bright Start account on the first of every month.
Because I am the kind of guy who likes round numbers and also resolves to send at least $5,000 to her college account every year, I usually send an additional $200 to her account at some time during the year. I had previously sent $500 to both her and my son's college savings accounts for many years, which is how I was able to save two hundred grand for these accounts on my regular old middle class salary.
I was also prompted to do so by this email from Bright Start a few weeks ago, which, as you can see, projects her account to reach over $70,000 by the time she turns eighteen, assuming 5% average annual growth compounded monthly.
For our son, I have not sent any additional money to his college accounts for over three years now, since about midway through his senior year of high school. I had previously managed to sock away one hundred grand into his college accounts, which still have about fifty-two thousand in them after shelling out well over sixty grand over his first two years plus the first several months of the current semester.
We have about fifty-two Gs left for him instead of forty because I have “only” withdrawn about forty-eight so far from his accounts because we pay $400 or $500 per month to his college out of our regular cash flow.
For those of you who pay college expenses with 529 accounts, you know that to qualify for the American Opportunity tax credit, you must spend at least four thousand dollars of non-529 money to qualify for it. You may not collect two tax breaks for the same dollars.
Let me clearly state here that my family is not becoming wealthy by any means. Because I saved and still save so much of our income for our children’s college accounts, my wife’s and my IRAs are at lower levels than they should be.
I have read several articles that say people our age (forty-eight) should have about four times our annual income saved and five times as much two years from now at the age of fifty. Some websites and financial gurus recommend more than that.
As our combined income is now around $120,000, that means that we should have nearly $500,000 saved and $600,000 in two years. Let me tell you, we are nowhere near that number and have maybe one quarter of that in accounts not targeted for educational expenses.
That does not mean that I will not continue striving toward reaching worthwhile savings goals. Also, I am working towards achieving a pension, which would be in the $6,500 monthly range if I can succeed in remaining gainfully employed in my current position or a similar one that contributes to IMRF through the end of 2025.
Paying Ourselves First still makes me feel better every other Friday when payday rolls around.
For the purposes of this here post, I calculated exactly how much I have Paid Ourselves First so far this year, now being early October of 2018.
$3,750 to my wife's Roth IRA, all in the Vanguard S&P 500 Index fund;
$5,000 to my own Roth IRA with T. Rowe Price; half has been invested in the Blue Chip Growth fund and half has been invested in the Capital Appreciation fund; and
$4,200 into our daughter's 529 account, all of which has been in the Illinois Bright Start in a conservative age-based index fund.
The grand total is $12,950. It is only that amount because, although I was Paying Ourselves First for several years, I was still only sending $250 per month to my wife's IRA for the first third of the year, at which time I decided to step it up to $500 per month. Likewise, I was only sending $100 to each of the two funds comprising my IRA for most of the year until recently striving to send $150 or even $200 to each one every payday. Mostly because of reading posts by other bloggers who subscribe to this line of thought.
Needless to say, sending $500 to my wife's IRA and $500 to my own every month has kicked it up a notch. Mostly because I have been reading, thinking and often writing about becoming a better saver. Because I have not yet mastered the art of generating additional income online besides twenty or thirty bucks a month on my old eBook, The P.O., which details typical days in the life of the Probation Officer that I once was, I have not yet succeeded in parlaying my blogging efforts into anything more than a few bucks based on a few ad clicks.
Awesome and Addictive
Something awesome happens when you tell yourself that you are going to set aside money for yourself and that it is more important than the other things that must be paid. Once you get used to the idea and embrace it, and then begin seeing your savings grow, it becomes somewhat addictive.
The more you save by Paying Yourself First, the more you are going to want to save!
I call this the “magic math” of paying yourself first. It’s not rocket science, and I most definitely did not invent the idea, but I am totally obsessed with the results of this single budgeting tip. Although probably every single finance blogger or published author and the many gurus in the industry all say or write this at some point, and often repeatedly, it is worth repeating and thinking about once more.
When you Pay Yourself First, you do not have as much money left over to waste. Your savings and investments were paid already, so you’re forced to actually “live” on the rest.
With my payday coming up again this coming Friday, one of the highlights of my week before sending another three grand to our son's college and another two grand to my wife's credit card and paying a slew of other bills will be the five Benjamins that I intend to Pay Myself First this coming Thursday.
I do not have an exact goal in mind besides continuing to Pay Ourselves First, but over sixteen grand for this year has a nice ring to it.
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"You need as much money in the bank that makes you feel secure," Orman reiterates. "Don't go fooling yourself, 'It's okay, I can charge on a credit card, I can do this.' You should have at least eight months. Not six months, not three months, I'd like to see you have eight months to one year."
That applies well to Yours Truly Money Mensch, as I work in the field of economic development, which has been in contraction mode in the Chicago area over the past ten years since the inception of the Great Recession.
Jobs in this field are relatively plentiful in business-friendly southern states that are not plagued by the overwhelming tax and regulatory burdens that we have here in the Land of Lincoln. I would not feel so stressed if we lived in Florida or Texas, but we do not and most likely never will.
The economic development function in many Illinois municipalities has been absorbed into other job titles, farmed out to contractual consultants on a year-by-year basis, relegated to public/private organizations or, in some cases, eliminated altogether. Mind you, actual economic development has been increasing greatly; I'm talking about the profession. As local governments continue getting squeezed by the State, economic development is not considered to be as critical a position as core services like public works and police.
Ironically enough, my plan for about seven years from now after hopefully qualifying for my IMRF pension is to be one of these hired gun consultants with a one- or two-year contract here and there.
Who wants to be at the same town trying to accomplish the same thing for as many years as I have?
I take Suze Orman’s advice seriously, along with advice read or heard from numerous other sources. When it comes to other pieces of advice that she has given lately, I strongly disagree with one and only partially agree with another. She has certainly stirred up the FIRE folks, but more on that next post.
That is why I have continued Paying Ourselves First, rather than just Paying Myself First, but it is the same concept.
Because I am the kind of guy who likes round numbers and also resolves to send at least $5,000 to her college account every year, I usually send an additional $200 to her account at some time during the year. I had previously sent $500 to both her and my son's college savings accounts for many years, which is how I was able to save two hundred grand for these accounts on my regular old middle class salary.
I was also prompted to do so by this email from Bright Start a few weeks ago, which, as you can see, projects her account to reach over $70,000 by the time she turns eighteen, assuming 5% average annual growth compounded monthly.
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Hypothetical value of your Bright Start savings plan at age 18:
So besides the $400 automatically invested on the first of every month, I sent the additional small sum of $200, so I have now invested $4,200 into our daughter's account this year with two more $400 payments to go. | ||
We have about fifty-two Gs left for him instead of forty because I have “only” withdrawn about forty-eight so far from his accounts because we pay $400 or $500 per month to his college out of our regular cash flow.
For those of you who pay college expenses with 529 accounts, you know that to qualify for the American Opportunity tax credit, you must spend at least four thousand dollars of non-529 money to qualify for it. You may not collect two tax breaks for the same dollars.
Let me clearly state here that my family is not becoming wealthy by any means. Because I saved and still save so much of our income for our children’s college accounts, my wife’s and my IRAs are at lower levels than they should be.
I have read several articles that say people our age (forty-eight) should have about four times our annual income saved and five times as much two years from now at the age of fifty. Some websites and financial gurus recommend more than that.
As our combined income is now around $120,000, that means that we should have nearly $500,000 saved and $600,000 in two years. Let me tell you, we are nowhere near that number and have maybe one quarter of that in accounts not targeted for educational expenses.
That does not mean that I will not continue striving toward reaching worthwhile savings goals. Also, I am working towards achieving a pension, which would be in the $6,500 monthly range if I can succeed in remaining gainfully employed in my current position or a similar one that contributes to IMRF through the end of 2025.
Paying Ourselves First still makes me feel better every other Friday when payday rolls around.
For the purposes of this here post, I calculated exactly how much I have Paid Ourselves First so far this year, now being early October of 2018.
$3,750 to my wife's Roth IRA, all in the Vanguard S&P 500 Index fund;
$5,000 to my own Roth IRA with T. Rowe Price; half has been invested in the Blue Chip Growth fund and half has been invested in the Capital Appreciation fund; and
$4,200 into our daughter's 529 account, all of which has been in the Illinois Bright Start in a conservative age-based index fund.
The grand total is $12,950. It is only that amount because, although I was Paying Ourselves First for several years, I was still only sending $250 per month to my wife's IRA for the first third of the year, at which time I decided to step it up to $500 per month. Likewise, I was only sending $100 to each of the two funds comprising my IRA for most of the year until recently striving to send $150 or even $200 to each one every payday. Mostly because of reading posts by other bloggers who subscribe to this line of thought.
Needless to say, sending $500 to my wife's IRA and $500 to my own every month has kicked it up a notch. Mostly because I have been reading, thinking and often writing about becoming a better saver. Because I have not yet mastered the art of generating additional income online besides twenty or thirty bucks a month on my old eBook, The P.O., which details typical days in the life of the Probation Officer that I once was, I have not yet succeeded in parlaying my blogging efforts into anything more than a few bucks based on a few ad clicks.
Awesome and Addictive
Something awesome happens when you tell yourself that you are going to set aside money for yourself and that it is more important than the other things that must be paid. Once you get used to the idea and embrace it, and then begin seeing your savings grow, it becomes somewhat addictive.
The more you save by Paying Yourself First, the more you are going to want to save!
I call this the “magic math” of paying yourself first. It’s not rocket science, and I most definitely did not invent the idea, but I am totally obsessed with the results of this single budgeting tip. Although probably every single finance blogger or published author and the many gurus in the industry all say or write this at some point, and often repeatedly, it is worth repeating and thinking about once more.
When you Pay Yourself First, you do not have as much money left over to waste. Your savings and investments were paid already, so you’re forced to actually “live” on the rest.
With my payday coming up again this coming Friday, one of the highlights of my week before sending another three grand to our son's college and another two grand to my wife's credit card and paying a slew of other bills will be the five Benjamins that I intend to Pay Myself First this coming Thursday.
I do not have an exact goal in mind besides continuing to Pay Ourselves First, but over sixteen grand for this year has a nice ring to it.
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