Do you get a lot of e-mail messages every day? I do.
On an average day, I receive between 100-150 e-mail messages in my inbox at work.
In order to keep my sanity, I had to develop an approach to maintain my inbox at a manageable size.
I had to figure out a way to prioritize my time, which is the most important currency in my work day and is also finite.
Managing your money comes with the same limitations as time. Like time, money is finite.
And like time, if you don’t purposely manage it and set the right priorities, it will slip away.
There is so much income you have every month and you have to decide where it goes each month.
You must learn to pay yourself first. This means that your money should address the most important items for your household first.
In order to pay yourself first, you need to protect the four walls, plan ahead, and have some fun.
1. Protect the Four Walls
These are the most important areas of your monthly spending plan. These areas cover the basic necessities of your family.
The four walls are:
- Food: Make sure you have taken care of providing what’s required to feed your family and yourself.
- Shelter: Keep your rent or mortgage payments up to date. You need to have a roof over your head. Also, under this category come your utilities (electricity, water, gas, basic phone service). Don’t let the lights get cut off!
- Transportation: You need to have a way to get to and from work and other places you and your family need to go. This includes car payments (if you have them), putting gas in the car, and basic maintenance like regular oil changes.
- Clothing: Ensuring basic clothing for you and your family is covered in your monthly budget.
Think about this:
- if you have a roof over your head and,
- if everyone is fed and,
- if no one is going to cut off the electricity or water and,
- if you can get to and from work, and you have basic clothing,
You can live to fight another day.
When the home front is protected, you can then focus on addressing the other elements of your financial plan like paying off debt or investing for the future.
2. Plan Ahead
Besides providing for basic needs, when you pay yourself first, you make savings a priority.
If you still have consumer debt (credit cards, car loans, student loans, medical bills, etc.), you need to make sure you build a beginner’s emergency fund of at least $1,000 ($500 if you make less than $20K a year).
If you have paid off all of your consumer debt, then you need to be working on building a full emergency fund of 3 to 6 months of expenses.
Once you have that full emergency fund built, you can then move on to investing for long term goals such retirement and paying for college for your kids.
3. Have Some Fun
You know what? When you are going full speed ahead in getting your money under control with a budget and paying off debt, it can feel like you just can’t afford to have any fun.
But you need to make room in your budget for some fun that’s appropriate for your current financial situation. Put a line item in your budget labeled “fun money”.
This should be a small percentage (maybe 1-2%) of your overall budget. This is an amount that’s designated for you to do anything you want.
My wife and I each get the same amount of fun money in the budget. My fun money goes mostly to help Starbuck’s.
The fun money is the oil that will keep your financial management engine running well.
Financial success is not accidental. You have to take charge of your financial destiny.
You get to set the priorities, you get to tell your money what to do. Don’t leave it to chance and don’t think anyone else will do it for you.
Pay yourself first!
“The plans of the diligent lead surely to advantage, but everyone who is hasty comes surely to poverty.”
Proverbs 21:5 (NASB)
Question: How will you start to pay yourself first?
This post is also available in: Spanish