Have you ever reached into your pants pocket and found $5? Congratulations, you’ve essentially stumbled upon the easiest possible method of saving money, called paying yourself first. Essentially, here’s how it works:
You cant spend money you don’t have.
That’s it. Not very complicated, right? If you have money set aside that you don’t even know you have or that you can’t access, it’s pretty much impossible to spend. By setting aside a small amount every paycheck, you’re saving up some potentially serious cash for your future self while barely impacting your current self. I can already hear your millennial moans:
But how can I have money that I don’t even know I have?
It’s simple: hide money from yourself. Basically, whenever you get a paycheck you automatically take a portion of that and hide it somewhere that is inaccessible. Inaccessibility is key: if you have the ability to easily withdraw it, you’re just going to spend that money on something stupid. Putting it in your checking account or hiding it under your mattress isn’t going to work here. Trust me: if you had self control, you wouldn’t have to implement this strategy in the first place.
Let’s look at a real life example: say you get paid every week. Every Friday, transfer $20 out of your account into the account of someone who a) you trust, and b) won’t give you the money unless you really, really need it. Think parent, best friend, etc.
The way you accomplish this can be high tech or low tech: schedule an automatic bank transfer every Friday, Venmo the money to your friend, withdraw $20 from an ATM and give it to your roommate, mail it to your parents, etc. It doesn’t matter how you do it, it just matters that you do it. Even if you’re the type of person that lives paycheck to paycheck, you really won’t notice $20 missing from your paycheck every week. On top of that, you will notice your money between paychecks dwindling faster and budget accordingly, and this is a good side benefit to have anyways.
It’s also very important that you give it to someone who you trust. If you give it to your drinking buddy Becky and she drunkly gives it back to you at 1:30 a.m. when you beg her to let you buy tequila shots, then you don’t have the right person handling your cash. Additionally, if the person you give it to spends your money, then you also have a problem. However, most people might have some moral quandaries about spending someone else’s money, especially if it belongs to their best friend.
In our example, after a month you’re going to have $80 saved up that you forgot about. After a year? $1040. If I took $20 out of your paycheck every single week starting this time last year, I bet you wouldn’t have even noticed. However, if I walked right up to you and handed you a check for over a grand, I’d bet you’d notice pretty quickly. Who couldn’t use an extra $1k right at this moment, whether it be for an unexpected vet bill for your sick cat, that once-in-a-lifetime vacation that your friends are going on but you simply can’t afford, or paying your rent after you unexpectedly got laid off? This is the power of paying yourself first: hiding money from your current self (who frequently overspends), so that you can have a whole bunch of cash set aside for your future self whenever you might need it.