Building Wealth - Cutting Costs

We have all heard the saying, “pay yourself first” if you haven’t you really need a financial tune up.  Pay yourself first simply means just that, set up your savings, retirement, etc., allocate a certain amount from each check then pay into your accounts just like they are a bill.  This is the way all wise investors manage their investments that are funded by their direct incomes.

The other side of the coin though is paying yourself last.  Please note this does not mean you stop paying yourself first!  Here is how it works, this month let’s say you pay into your investments, you pay all your bills and now at the end of the monthly cycle you have a surplus of funds.  Say you generally carry 200 dollars extra between the last pay check of the month and the first check of the new month.   This month ends and you have 425 dollars in your account.

How did it get there?  Who cares!  It is there, perhaps your expenses went down, you made more money, you got a win fall, I don’t care how it showed up there is one and only one things you should do with it.  GET IT OUT OF YOUR CHECKING ACCOUNT NOW!  Move it to savings, dumb it into your IRA, move it to another account, do anything (other then spending it) to get it our of your check book.

Checkbooks are meant to manage money that you intend to spend, you will never save efficiently because your psyche says that this money is spendable.  Move the money to “savings” and even though you can move it back with a mouse click via your online bank account you mind set about this money changes.  You will ask yourself, “do I really need to move this money out of savings?”, “why am I doing this?”, “do I really need to do this now?”, etc.  In the end you will save more and spend less, you will make better decisions.

You don’t need to lock away this money until you are 59 and 1/2 years old in your IRA for this to be effective.  Just the simple act of putting it into a bank savings account will change the way you see this money and that will change how you manage, allocate and spend it.  Do it every single time you end with a surplus, be it a dollar, a dime or a thousand dollars, move it to savings and in a little as a years time you may shock yourself.