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Course: Financial Literacy > Unit 2
Lesson 3: Saving money- Why and how to save
- Why and how should I save money?
- Planned and unplanned expenses
- I am ready to save. What is the next step?
- Saving wisely: emergency fund
- Emergency fund
- Saving wisely
- Saving wisely: planned expenses
- Paying yourself first
- Pay yourself first
- Paying yourself first
- What are different types of savings accounts?
- What is interest and how does it work?
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Pay yourself first
Learn how to structure your paychecks around paying yourself first.
You might have heard people say "you should always try and pay yourself first". The phrase "pay yourself first" generally refers to the idea that when you receive income, you should prioritize saving money for yourself before paying bills or other expenses.
So, let's walk through how you pay yourself first.
Paying yourself first
How you pay yourself first will depend on how often you get paid. Some people get paid every week, others every other week, some twice per month, and others once per month.
Pay period | Example | Number of pay periods per year |
---|---|---|
weekly | every Friday | 52 |
biweekly | every other Friday | 26 |
semi-monthly | every 1st and 15th of the month | 24 |
monthly | every 1st of the month | 12 |
Refer to the table above to see how many pay periods you have in a year. This will help you figure out the amount you need to save each time you receive a paycheck.
Example
For example, let's say you want to save for a new laptop:
- If you're paid weekly, you need to save
each time you get paid. - If you're paid biweekly, you need to save
with each paycheck. - If you're paid semi-monthly, you need to save
each time you get paid. - And, if you're paid monthly, you need to save
each paycheck.
This method works for any savings goal. Let's say you want to save for a vacation and you are paid every two weeks. You would divide by pay periods to get per paycheck. This amount will then be put aside into savings and when the vacation time finally arrives, you will have all the money save up - no stress, no worry.
By syncing your savings with your paycheck, you are able to save money before you get the chance to spend it, thus, pay yourself first.
Want to join the conversation?
- What would happen if i were to pay myself last?(70 votes)
- im in jail for 7 years(16 votes)
- 3 hots and a cot for 365 X 7. That'll save you a lot on food and rent!(36 votes)
- Isn't using the calculator cheating?(4 votes)
- You are using the calculator for yourself. This is not an examination of your personal arithmetical skills. Using the calculator is probably best.(38 votes)
- doesn't bi mean two?(6 votes)
- yes, bi means 2(10 votes)
- What is the best way to get paid?(1 vote)
- The best way to get paid is to get a job with an employer who will pay you.(20 votes)
- how can you make big money?(2 votes)
- You can "make big money" in the following way.
1) Get skilled (this may take time, study, dedication and incurring some debt through taking out educational loans).
2) Focus on a field where "big money" may be earned (so, stay away from human services or social sciences. Don't even think about the arts.)
3) Get a job in a place where you have access to a research laboratory.
4) Delay marriage and family commitments. Even forsake the idea of having children.
5) Become the owner of a business, wherein you can underpay the people who work for you while you reap the rewards of their labor.
6) Take advantage of tax avoidance schemes.
In the end, you may well "make big money", but you will have sold your soul to some kind of devil or another, even if you don't believe in devils.(11 votes)
- im in jail for 7 years(3 votes)
- That's very sad. While you're on the inside, I hope that you can take advantage of things like "college behind bars" and other opportunities for learning. Stay safe, man. It can be dangerous behind bars.(8 votes)
- I'm a bit confused. When I want to pay myself first, is it a saving different than the 20% saved from 50/30/20 rule? The way I understood it is that this kind of saving is for personal goals, not an emergency fund, is that right?(4 votes)
- Let's do this slowly.
Start from the amount you earn each month. Let's say that your local currency is called the Zloby, and you get paid 50,000 of these every month.
Your housing, insurance, transportation, debt-service, food and clothing should total no more than 25,000 every month. You should save 10,000 every month. When your emergency fund is full, you should save those 10,000 anyway, because saving is a good thing.
That leaves you 15,000 every month to do things like take your girlfriend to movies or go on ski holidays to Chile.(5 votes)
- What about inflation if lets say you save 1-2years to save up money for something?(3 votes)
- Inflation is part of the world in which we live. Given that prices will rise, you may find it taking more time to save for that thing you want. That's just the way it is.(3 votes)