A friend of mine recently went through some personal finance courses due to financial difficulties she was having. We were talking about the classes she took and she told me she had learned a lot and was happy to have gone through them. She surprised me with a comment. She told me the one thing the classes taught her that she didn’t agree with was the “paying yourself first” concept. I was surprised; I figured if the classes covered anything, this would be one of the obvious things to cover!
Paying yourself first is when you take a percentage of your income and put it in your savings account or other designated account before you start paying your other bills. This is also referred to your “emergency fund” since it is only to be used in emergencies. It is important this account is actually only used for emergencies. Using a little here and a little there each month when you run short on spending cash does not constitute an emergency. A shopping spree is not an emergency. Having car trouble which will not allow you to get to work is. These are the types of things an emergency fund is used for.
My friend did not agree with this. She felt that she needed to get all her bills paid and then if she had anything to save then she would save it. If she didn’t have anything to save, well, she wouldn’t be saving.
This is the kind of behavior that causes financial problems in the first place. By paying yourself first, you are giving yourself a fund to draw from when emergencies come up. If you are trying to pay down your credit card debt, and you have no emergency fund, you will continue to rely on your credit card. This will counteract any payments you make and will continue you on the cycle of debt.
If you like me, any debt you incur, you most likely want to pay it off ASAP. While I’m certainly not advocating carrying a ton of debt, you have to be realistic with how quickly you can pay off your debt. If you are paying your normal monthly bills such as housing, utilities, transportation etc. and then putting all your leftover money towards debt, with no savings, you aren’t doing yourself a favor. It never fails, something comes up and you need money to pay an insurance deductible or pay a doctor bill. Then you are back in the cycle of using your credit cards to try to stay afloat.
The rule of thumb is putting 5-10% of your income towards paying off debt. If you would like to increase that percentage, you can either earn extra income or cut out some unnecessary spending in your budget. I use the word unnecessary here because there are certain things we have that are not required to live. For example, you need a food, clothing and shelter to survive. But you do not need cable TV with all the premium channels to live. You may think you do, but I promise you, you don’t!
There are several things you can do to bring in extra cash to help pay down debt. Can you work more hours at your current job to bring in some extra cash each month? What about selling some things like clothing or electronics on craigslist or eBay? Babysitting for friends and family members can also help bring in extra cash. Start getting creative with your skills and see where it can take you.
If you aren’t paying yourself first, try putting $20 aside for emergencies with your next paycheck. Work towards increasing this over time until you have an emergency fund with $1,000. The practice of paying yourself first is the foundation for building an emergency fund that will help break the debt cycle.
Bonus Money Saving Tips
Are you looking for more personal finance tips? Here is a list of some of my most popular tips for making & saving money:
Making More Money
Know Where you Are Today – Before starting out on any endeavor, it’s important to understand where you are today. I suggest using Personal Capital to get a holistic view of your financial picture. It’s free and easy to use. It can be accessed via your desktop, tablet or mobile device and will provide insight into where you are spending today and where you might be able to cut back.
Blogging – This is one of the first questions I always get asked so I’m including this one first. How can I earn extra income with a blog? As you can probably imagine, that isn’t a question I can answer in just a few sentences! One of the ways to earn extra income through a blog is from affiliate marketing. This can be a tricky topic if you don’t know what you are doing. A fellow personal finance blogger has put together a course called Making Sense of Affiliate Marketing that will teach you how to earn extra income from affiliate marketing. Michelle teaches you the exact steps she has taken to earn $100,000/mo (yes per month) from her blog. I have went through this course myself and loved it, I highly recommend it!
Bring in More Money – In some instances, you may not be able to cut back anymore so in addition to cutting back, earning extra income can help you to bridge the gap in your income. Sites like Flexjobs and Moonlighting let you earn extra or full time income from home. I particularly like Flexjobs (more detail in my Flexjobs review) and have used their services in the past when I was looking for a IT Consulting job where I could work from home. The service is exactly as described as they are able to aggregate legitimate work from home professional positions in one place. You can even set up alerts to be notified when positions you are interested in become available.
Start a Side Gig – Do you have a hobby you enjoy? Have you ever thought of making income from it? The opportunities for having a side gig (something you work on in your free time) and earning income are endless these days! I wrote an article on how I’m earning multiple streams of income. What do you enjoy doing that can help you bring in extra income?
Survey Sites – Depending on the survey site, you can get paid cash and or have the opportunity to try free products. I have done many of these over the years and always enjoyed earning the extra money. I’ve also been able to try new beauty products, food items and many other things I wouldn’t normally try, for free! Note: you should never pay for information for these types of sites. Here are a few I recommend: American Consumer Opinion Panel, InboxDollars (ios), Swagbucks, Harris Poll, Epoll Market Research, VIP Voice, Your Surveys, Nielsen Digital Voice, Earning Station, Vindale Research, Panda Research
Ebates – Using Ebates can help you earn cash back. By shopping through Ebates at your favorite stores, you earn cash back on your purchases. Ebates will pay you via check or Paypal. Check it out, it’s a great way to earn extra money for things you are already buying (just make sure you really need what you are buying!).
Rent out Your Space – Have an extra room to rent out & want to earn some extra cash? Sites like Homestay.com connect guests to local hosts in over 150 countries. Hosts offer their guests the chance to live and breathe the local culture, to make friends as well as memories and to explore destinations in a truly authentic way. Homestay hosts can enjoy the fulfillment of being a part of their guest’s new adventures and make some money by renting out their extra space! Airbnb is another great site to use to find places to stay or rent your space out. If you use this link to sign up, we both get a $35 travel credit! And, you can earn another $75 in travel credit when you welcome your first guest!
Consolidate when it makes sense – I’m not always a big fan of consolidating loans but sometimes it can take the pressure off you when you have a lot of payments. (Of course – the trick to that is to stop the behavior that caused you to get all the payments in the first place!) If you are looking to consolidate your debt, I recommend Lending Club. Lending Club is a peer-to-peer lender which means you are able to bypass a traditional bank and get connected with investors who fund your loan and earn monthly returns. Normal credit checks still apply and Lending Club offers unsecured personal loans of up to $35,000 to borrowers with good-to-excellent credit at very competitive rates. I have used Lending Club twice for loans and have been happy with the products and services both times. I highly recommend Lending Club if you are looking for an alternative to a traditional bank.
Cut the Cable – Years ago I decided to get rid of cable and was able to stream content through my Roku device. I still love my Roku as an alternative to cable and highly recommend it to anyone who is interested in saving money. I wrote a detailed guide on how to get rid of cable and use a Roku device. In addition to my Roku device (where I stream Netflix & Amazon Prime) I also purchased a $6 antenna to watch local channels live. It’s a great set up and has saved me over $1,200 a year!
Find Inexpensive Fun – Looking for a night out but don’t want to spend a lot of money? Yelp Deals, Living Social & Groupon all offer inexpensive ways to go out and have fun without spending a lot of money.
Save on Your Cell Phone – change your plan, remove unused lines or ask for a corporate discount. Don’t work at a corporation? Sprint gives a discount for being a credit union member. I personally like Sprint because of the unlimited data, but you may not need that. If not, try Republic Wireless. I know a lot of people who use Republic Wireless and are really happy with the service and the low prices! If your not familiar with the company, Republic Wireless is an innovative new mobile provider, spearheading a wireless freedom movement to return value and control of the smartphone experience to its members. Leveraging the power of the Internet and an engaged community of users, Republic Wireless offers unlimited talk, text, & data starting as low as $5 per month, with no contract required.
Save Money on Shaving – Shaving is a fact of life and unfortunately buying expensive shaving cream and razors can add up and quick. Years ago I read a tip to use conditioner in the place of shaving cream. I’ve been doing that for many years and it is amazing. I buy a bottle of conditioner from the dollar store and I’m set with shaving cream for quite awhile! Additionally, I discovered a site called Dorco to order razors in bulk at an extremely discounted price. I love this site and use them anytime I need to buy razors. They have mens and women’s razors & razor sets and you can’t beat the price & the quality! Try the Dorco Frugal Gal’s pack and let me know what you think!
Save Money Using Zaycon Foods to Buy Meat – If you’ve never heard of Zaycon Foods, let me tell you about this amazing company. I’ve been using them for the past 4 years to buy my meat in bulk and purchasing this way is a great way to save! The owners of this company have taken the middle man out of the meat buying process and getting food from the farm right to consumers like you and me. They’ve been around since 2009 and the service has been so popular, it’s grown tremendously over the past few years. The way it works is you go online, set up an account, place your order and on the day of your Zaycon sales event, you drive to the location and pick up your food. It’s simple and easy!
Or if you’re really serious about changing your financial picture, check out my course Taming Your Finances (& Saving $5,000 in the Process) to get a grip on your finances once and for all!