Pay Yourself First

Many consumers treat savings as an afterthought and only save when there is something leftover. If there is anything left from the paycheck at the end of the month, then they think about saving that. Unfortunately, most consumers will find a way of spending all or nearly everything they make if they leave it in their checking account. If they know they have money available, the impulse to buy, combined with the availability of funds will often trigger a purchase decision. But by paying themselves first, they will reduce that amount available to spend and ensure that something goes into savings every pay period and reduces the possibility of overspending.

While many people talk about “Paying Yourself First”, do consumers really know how to do this? What does “paying yourself first” really mean? It means making yourself a priority and putting your future ahead of all other competing demands. It means taking money out of your paycheck before it has a chance to be spent on bills, food, or any other part of your life. In essence, you become the first budget item paid each pay check, before all the bills and discretionary purchases.

Our goal should be to help our customers to “Pay Themselves First”. So what can we do to help? First, it is not so important how much you set aside each paycheck it is making sure you set aside something each paycheck. And, more importantly, it needs to be automatic. If you don’t see it, you can’t spend it.

There are several ways to automate the savings process, but having a set amount deducted from each paycheck and directly deposited to a Savings or Money Market is the easiest. Your customer can simply supply their employer with the routing and transit number and the account number where the funds are to be deposited.

If their employer does not have direct deposit or requires all the funds to be deposited into one account, we can accommodate that also. Setting up a systematic transfer from Checking to Savings each month is something you can easily set up for them. Or, if they prefer, they can even do this themselves in online banking.

The key for your customers is to get the process started and then monitor how they are doing over time. If a transfer of $25 per paycheck is working well and they still have adequate funds to cover expenses at the end of the pay period, consider moving that to $50. Initially, the task may seem impossible, but your customers will be amazed at how they don’t even notice that their net deposit to their checking is lower. What they will notice is how quickly the balance in their savings account will increase. If they set aside just $50 per semi-monthly paycheck, this would grow to over $1,200 in a year, which becomes $2,400 after two years and $6,000 after 5 years.

This recent economic crisis has taught all of us the need to save.

Make it a point to "Pay Yourself First" with your next paycheck!! You will be amazed at how easy it is and how you can adapt your spending habits.

For the adventurous of you, consider a more radical approach. Instead of depositing you paycheck to your checking and transferring a portion to your savings. Why not deposit the entire paycheck to your savings and only transfer to your checking what you have budgeted to spend for the month. This will ensure you are disciplined about your spending and will help you maximize the amount you save each month.

No matter which method you choose, it is just important to start.

Good Luck