Pay Yourself First to Save

It’s easy to save for retirement if you make it the first bill you pay. You can do this through fixed direct deposit, an employer retirement program or by getting on an automatic pay plan. It doesn’t matter if it’s only a small amount. What does matter is that you pay yourself first.

First, one of the easiest things you can do is take a portion of your paycheck and stick it right in the bank the day you get paid. If your employer allows direct deposit, take advantage of it.

Some employers even allow net and fixed direct deposit. Net direct deposit involves the majority of your paycheck going into your checking or savings account. Fixed direct deposit entails a small portion of the same paycheck going into a different account.

The beauty of this system is that you automatically put money into a separate savings account, and you never have to worry about remembering to save the money in the first place. After a few months, you may even forget about it until you receive your bank statement and see a nice sum already growing while you live comfortably on what’s left.

If you get paid by paper check, you can set up a savings account with an automatic bill payment service. That way, when you cash your check and deposit it into your account, you withdraw a certain sum from your checking account, and transfer it into your savings account. This is the same as paying your bills automatically.

This way, you don’t have to remember to consciously pay yourself. Treat your new savings account like a bill. Never miss a payment.

Another method: Have your bank automatically wire the money to your individual retirement account or participate in your employer’s 401(k), 403(b), 457, SEP, SIMPLE or profit sharing plan.

The same concept applies where you dedicate a percentage or fixed amount from your paycheck every pay period. This saves money and lowers your taxes since these plans take money out on a pre-tax basis, meaning you’re taxed on the sum left over after you’ve already saved.

I recommend starting out by saving 10% of your income. If that’s a stretch for you, save 5% or even 1%. It’s amazing how quickly it grows, and how easy it is to save even more.

Of course, money doesn’t buy happiness, but can you remember how you felt the last time you found some stray cash on the street? Felt pretty good, didn’t it? The same happens when you forget about what you’re saving and find a tidy sum next time you open up your statement.

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Sterling Raskie, MSFS, CFP, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, IL. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning.

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