Can you bear with me for one more labored metaphor? As I’ve mentioned a few times already, I’m in the midst of a successful fitness program. I’ve lost 20 pounds since the beginning of the year, and, more importantly, I’m exercising every day.
This morning, for example, I pedaled 8-1/2 miles to my Crossfit gym; spent an hour practicing skills, doing body rows (pull-ups for people who can’t do pull-ups), and lifting weights (front squats); and then I biked 10-1/2 miles home. According to my handy body bug, I burned 1500 calories by 9 a.m., which means that I can spend the rest of the day blogging, working in the yard, and learning French, secure in the knowledge that I’ve already done 2-1/2 hours of exercise.
This, my friends, is essentially the routine I’ve established lately. I get my exercise in first thing so that I don’t have it looming over me for the rest of the day. I don’t want to find myself eating dinner while wondering when I’m going to find time for a one-hour run. When that happens, I feel guilty and often don’t follow through. (And yes, I realize I’m lucky to have a flexible schedule that lets me fit in an hour or two of exercise every morning.)
Pay yourself first
One of the reasons my financial life has been humming along so nicely lately — except when I forget to pay my bills — is that I’ve been applying similar principles to my budget over the past few years.
It used to be that when I got paid, I’d pay my bills, then use any leftover money to buy stuff I wanted today instead of setting anything aside for the future. In fact, I never saved anything. Despite earning around the median income for men in the U.S., I never seemed to have money left over at the end of the month. (I didn’t even have a savings account until after I started this blog!)
But as I began to dig myself out of debt, I read a lot about the importance of paying yourself first. For a while, I didn’t get it. I didn’t understand what people meant when they said this; after I started making debt reduction a priority, it started to make sense. If, when you get paid, you set money aside for your financial goals before paying bills and buying toys, it’s far easier to achieve your dreams.
So, for example, when I was working my debt snowball, I made sure that the first thing I did when I got paid every month was to pay down my debt. Next, I paid my bills. And if I had money left over (and I usually had a little), I used that to buy comic books or to eat at a restaurant.
Once I’d repaid my debt, I continued to pay myself first. But instead of using the money to pay off my past, I used it to pay off my future. I began to save for retirement. I started by setting up a Roth IRA through Sharebuilder, which automatically pulled $333 from my checking account. When I realized I could also set up a solo 401(k) through my business, I did so, and I started funding that as much as I could and as soon as I could.
Now I’ve reached a point where I not only try to fund my financial goals early each month, but I also try to fund them early each year. Once I decide how much I want to save for retirement each year, I try to invest that money as soon as possible. (By May or June is ideal.) And in a move that’s sure to drive certain readers crazy, I actually try to pay my taxes as soon as I can, too. As a small-business owner, I’m required to make quarterly payments on my estimated taxes. What I do instead is save like a madman during the first few months of the year so that I can pay all of my estimated taxes by the end of April.
King of the world
Why do I do this? Why am I so obsessed with paying myself first? Because I’ve found that it feels fantastic to know I’ve met my financial goals before I’ve even had a chance to spend the money on other things. Just as I can sit here at my desk, basking in the warm glow that comes from knowing I’ve already finished my exercise for the day, so too paying my taxes early (and funding my retirement as soon as I can) lets me spend the rest of the year without a black cloud hanging over my head. This year, for example, I can save for our trip to France and Italy without wondering if I still need to set money aside for taxes.
Simply put: When I pay myself first, I feel like I’m king of the world.
Okay, that’s enough with the money metaphors. I’ve used them a lot lately, so I’ll give them a bit of a rest. Inspired by the comments on this morning’s post, Wednesday discussion will be an “ask the readers” about the processes and systems you use to keep your financial life flowing smoothly. (Tomorrow’s article is from April.)
This article is about Basics, Budgeting, Retirement, Savings
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@Roman
Real learning is a spiral not a line.
You learn something, practice it and then take it to the next level when the thing comes around again.
I am doing much like JD.
First I paid myself first for groceries&kid’s college(@25), then IRAs(@35) and now just about everything (@50).
As something arises that I can take my old lessons and apply them. I adapt and move on. JD cleared his debt and moved forward. We cleared our debt (including house mortgage) and moved forward. In two years we paid ourselves first to come up with several hundred thousand to retire on.
I actually have MORE “pay” categories and accounts now than I did when we were making 3x’s the money.
It is a theme I constantly reassess and appreciate JD does the same.
AND now for my morning walk!
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COurtney, Shara & Jonasaberg, I’m right there with you. I climb on the treadmill at 9:30 or 10:00 at night, after my other obligations are done. When I exercise in the morning, I’m hungrier all day and end up eating more, which kinda weakens the benefits of exercise. (And I’ve lost 60 pounds in the past year, so nighttime exercise definitely works for me.)
But moneywise, pay yourself first is key for us. We have a TylerK-like process, of automated savings on paydays, plus some tiny extras like saving all change and checks. Like other posters have commented, we are lucky to have an income that allows us to not carefully track every penny after we’ve covered savings and fixed expenses.
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@ #52
I used to save all my change, too, but it’s not an easy thing to do in the UK.
Because we have £2/$3 coins, it’s not at all uncommon to get only coins back from small purchases where you use a £10/$15 or £20/$30 note.
While my piggy bank liked it, I quickly got sick of sticking the equivalent of $12-13 a time in him!
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Luke, but those pound and 2 pound coins are so pretty — two tone metal, new designs each year — don’t you want to save them all?
But I guess you’d be wealthy, but hungry, if you saved all those coins.
Maybe it should be save-all-shillings-and-pence rule in the UK.
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I’ve made this point on other discussion boards, but it always seems like there’s someone else out there who needs to hear it. So here you go, #39:
Just because someone is in debt does not necessarily mean they were careless, stupid or even made bad decisions. Sometimes, life happens and things go beyond our control.
My husband and I are currently working on getting ourselves out of debt. Some of it is debt that has been mounting for years, some more recent. Neither of us has very high-paying jobs, although we both make a lot more than we used to. He is a police officer and I work in a library. Up until a few years ago, I worked in a photo lab for not much more than minimum wage. I went back to school and got a degree, enabling me to get a better job. So now, I make more, but I have student loan debt. (I would have loved to not have to take out loans, but making $35,000 a year–that’s combined GROSS income– with 3 kids, it just wasn’t going to happen). A few years ago, a flood hit our hometown, destroying the interior of our basement. We had to take out a home equity loan to pay for repairs.Last year, a roof leak forced us to take out yet another loan to fix the roof. Through the last ten years, we also did not have an emergency fund, so any major thing like sudden necessary car repairs went on the credit card. So we had credit card debt as well. Now, we are finally, for the first time in our marriage, making enough money to be able to dig ourselves out. We have set aside a small emergency fund (I’d love to see it get bigger….) and paid off the credit card. Now we are working our way through the rest of the debt. I will be getting my master’s degree in two years (this time on a scholarship!) so will hopefully dramatically increase my earnings. We are planning to put almost ALL of any increase in pay into paying off debt and adding to our savings. The future is looking quite bright….but looking back, I really don’t see what we could have done different. We’ve never been big spenders, don’t have a big fancy house, have never had a new car, and no expensive habits or hobbies. In fact, I make money at my hobby. Sometimes it’s just a matter of not enough money coming in.
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@#39 Roman
So then it’s not worth your time if you are overweight or in a financial mess to read about somebody who was both of those things and managed to do something about them?
The only real problem with this blog is JD’s been too successful, and it’s sometimes depressing to realize you’ll never fully recreate his experience.
I mean really what’s JD supposed to do, spend the whole time going “Man I was so stupid, stupid me, dumb dumb me, now I’m just getting around to doing what I was supposed to…”
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My husband seems to see budgets in a very different way than I do. Basically, whatever is in the budget, he will spend. If part of the budget was supposed to accumulate (say, for car repairs in transportation budget, although that doesn’t apply to our case) he’d spend it too.
However if I keep the budget separate or just reduce them (because I had been generous at first but it proved a bad idea) he doesn’t seem to notice at all.
I think paying yourself first work on the same rule. You spend differently when you see you have a lot of money left and when you see that you don’t. I don’t work that way, personally, but obviously a lot of people do. So I can’t stress enough the importance of paying yourself first. Otherwise you might end up not paying yourself at all!
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Those of you who are debt-free and save money will only be punished when the U.S. government decides to monetize its debt.
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Maybe so, Jo, but those who don’t save will suffer either way. I’ll take my chances.
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Paying myself first really paid off when the first property tax bill came after buying our house. Our mortgage broker had led us to believe the property taxes were built into the loan, but they weren’t and the emergency fund made paying that large, unexpected bill much less painful. I now set aside an amount on a bi-weekly schedule (to coincide with paydays) so that we always have that payment built up when the bill arrives.
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@Poster 58 – Great idea, let’s abandon all fiscal restraint and proactive initiative and sit on our hands and worry about a market apocalypse. Monetary policy is certainly beyond the sphere of our control, save involvement in the political process. Personal finance is about doing what you can where you are with what you have. Excessive worrying about things beyond your control is simply futile. I am not sure what your comment adds?
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I roll out of bed early in the morning, take a run or go exercise at they gym. While still pumped from working out, I immediately sit down and work (write, research, brainstorm, etc.). By about 10 am in the morning, I’ve accomplished just about all they key things I want to do each day (exercise, write, etc.). My day is successful, even if nothing else goes well the rest of the day.
This is just the same “pay yourself first” notion. It is also known as setting priorities and hitting the highest priorities first.
This works in our personal life just as well as it works in business (shameless plug: see my site on project management and why “You Are Your Best Project Management Tool.”)
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I’m a HUGE fan of paying yourself first too!
It’s human nature not to be able to put aside money after all the bills are paid, really.
I have now automated the deduction from my chequing account to my savings account, and found that I am saving at a much much better rate. I should have done this 5 years ago when I started working =)
hindsight is always 20/20 right?
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i’ve enjoyed reading all of the comments to this post. i find myself in the same boat as tyler and others in that we are blessed to have incomes that enable us to live comfortably. i read dave ramsey’s book and thought it was sensible advice but didn’t consider it applicable since we make more than enough money to pay our bills, save for retirement/kids’ college funds, take vacations, etc.
then i started thinking about the what-ifs in life…like what if i wanted to quit my job and do something else or quit my job and hang out at the house (joking about that last one). point is that i realized there is something to being debt-free or fairly debt-free because it gives you *freedom*.
we’re sort of a weird hybrid, though, because i use a credit card to pay for virtually everything – we use the miles to go on great vacations – we just pay it off each month.
i also just like being frugal to be honest. why be stupid and fritter away all of our hard earned money? agreed that it’s a balance, though.
@roman – i suggest you stop reading the blog if you’re so offended. actually you should stop reading blogs period if you’re offended by a person sharing their experiences and opinions because that is what a blog is about.
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