Pay Day Ritual

Today I heard some disheartening news. “Paying yourself first doesn’t always work.”

The term “paying yourself” refers to the awesome principle of saving.

Thankfully I didn’t believe that news, and I never will. I hope you don’t either. Paying yourself first WILL work. I don’t know what your bills look like every month but if they equal your paycheck then you need to cut some of them down. Sell the car. Cut the cable. Turn off the air conditioner. Just find a way to get some extra in there. THEN it is always possible to pay yourself first.

I love paydays. I love them because I get to “get stuff done” in the financial world on those days. I usually wake up early on Pay Days and see my paycheck deposited into my checking account. Then I go about doing the following things…Save. Pay. Spend.

Save

I dish out money from my paycheck into different savings accounts. I know how much I can dish into these savings account because I have this thing called a budget (it’s rad.) And I put my savings into my budget. It’s basically just another bill. But it’s a bill I get to pay MYSELF! 😉 I do this first so I don’t have an excuse later on to back out of it. Some people even have it automatically taken from their paycheck and put in another account, but I enjoy doing it manually for some reason. 😉

Pay

This is about the necessary evils called bills. We hate them but we love them because they are the way we get to LIVE. Regardless of the due date of a bill, if I have the amount that is owed, I pay it on payday. Most of my bills are paid out of the second paycheck of the month but the big one (rent) is paid out of the first. A lot of things are automatically taken out of my checking account so I don’t have to worry about it but there are a few I manually pay. And payday is a great time to do it. Why spread out paying bills over a period of days when you can just spend a few minutes in front of the computer getting it all done at once??

Spend

Well, everything else is left to spend! It’s so simple. This is where you buy groceries and gas and movies and everything else you love to spend your money on. A budget will help you make sure you have enough left over for all of this. This is money you CAN spend guilt-free because you’ve paid yourself, you’ve paid your bills and now you get to just live.

Super easy right? Save. Pay. Spend.

Of course, some don’t feel their paycheck is big enough to handle all three. That’s when we begin to just “pay” and “spend.” But like I said earlier–find a way. Even if it’s saving $10 or cutting the “spending” down to the necessities. I promise saving will pay off in the end. I’m no expert but I’ve begun to do this, and it’s extremely rewarding.

Remember–no age is too young or too old to start. But of course, the earlier you start the better!

Do you have a ritual you participate in on payday? 😉 What do you think of the “Save. Pay. Spend.” concept? Does anyone else have any good ideas?

Advertisements

Back to the Basics Part 2: Savings-Cash Savings

Happy St. Patty’s day everyone! Hope you celebrate it by wearing lots of green and pinching some people. 😉

Now for your feature presentation…


Remember what my emergency funds are for?

What do you think the difference between that and cash savings is?

What’s the Diff?

Recap: Emergency funds are for 6-8 months of normal living expenses if you were to lose your source of income and need to support yourself while looking for another.

Cash savings are for everything else that comes up while you still have that source of income!

What Cash Savings Is For

Car breaks down and needs a $1100 to repair it. Then you break your arm and take a little trip to the ER. And on top of all of that you finally see the laptop you’ve been wanting for 4 months on a killer sale?

What to do? Well, it’s NOT time to break into your emergency fund.

When and How Much

Side note: Until you hit your 6-8 months living expenses mark in your EMERGENCY FUND you may have to use your E-Fund for these kind of “emergencies” you‘d normally use your cash savings for (ok, maybe not the laptop!) But when you’re emergency fund is on its way up beginning your cash savings is a very good thing. It serves as cash for this emergency or that rockin’ sale. That way you don’t feel strapped down and unable to take care of yourself and splurge (every now and then. =)

Our cash savings doesn’t necessarily have to have a limit (but maybe it should because at some point you’d want to invest your extra cash not just let it sit there waiting to be used making .01% or whatever your money market account makes…maybe 3.5% like mine. 😉 But really, it’s just a very nice thing to have.

I say it’d be nice to keep at least $2k-$4k in here for random expenses that may come up and perhaps even more depending on your income and lifestyle.

Freedom

I’d consider this funds existence as the point where we are truly not living “paycheck to paycheck.”

This way you don’t have to break your budget, and you don’t have to dive into your emergency fund in order to get your car fixed or buy your mom those spontaneous flowers you know she’ll love.

Why is getting your car repaired or new tires not considered something to dive into your emergency fund for? Because it definitely will happen, and thankfully we can be ready for it!

This “cash savings” really doesn’t exist for me right now, but I can’t wait until it does. I am putting my main focus on my emergency fund and a few “small savings” funds for certain things I’m wanting to purchase.

Breaking It Down

And on that note, cash savings can be broken down to true “cash savings” and to “specific item funds” where you foresee a larger purchase and specifically save just for that. I‘m doing this for a vacation right now. Technically it’s still cash savings, but I don’t keep it in the same place as the other because I know there’s a difference. It is not really “free” money; it’s going to be spent on something in particular.

Depending on our level of discipline your cash savings could be kept in your checking account or in a savings account for use at a specific time.

Thoughts? How important do you think a cash savings is to peace of mind and living an enjoyable life? Do you separate your emergency fund from your cash savings?