Even if you’ve eliminated most of your debts and you’re employed, paying yourself first and maintaining a savings is critical to having a healthy post-bankruptcy life. What does it mean to pay yourself first? It’s simple: before you pay your bills, buy groceries, or anything else, put aside a portion of your paycheck to savings or long term financial goals. Let’s take a look at why paying yourself first is important and how you can squeeze savings into your budget.
“Paying yourself first and maintaining a savings is critical to having a healthy post-bankruptcy life”
Unexpected Things Happen
No matter how careful you are or how well you’re paid, unexpected things eventually happen. Car repairs, medical bills, or accidents can all send your budget for a loop. By paying yourself first, you ensure that you have the cash available to absorb the financial shock of unexpected emergencies.
While having a budget is helpful when paying for your day-to-day living expenses, there are one-time yearly or quarterly expenses that may require some planning. Tally up your yearly or quarterly expenses and make a savings plan that will ensure you have the money when necessary. For example, if you know you need to buy Christmas presents for the entire family, estimate how much you want to spend then create a monthly savings plan that will allow you to put enough money away each month (or week) to reach that financial goal. This money should be separate from any emergency fund.
Retirement Is Inevitable
Many people imagine that they will work forever and never retire, especially if they love their job. But the reality is that as we age life can often throw us a few curve balls. In a recent survey by bankrate.com, 26% of individuals between the ages of 50 to 64 have no savings for retirement. Most will likely not have enough savings to retire comfortably. Paying yourself after bankruptcy is important to ensure that you have enough money for retirement. Even if you don’t plan to retire, having the option available to you is empowering and can give you peace of mind.
If you’re working with a tight budget after bankruptcy, it’s only natural to assume paying yourself is impractical or impossible. Fortunately, that’s not always true. Here are a few tips on how to pay yourself first even if your budget is tight:
- Join the share economy. Living is often cheaper when there is more than one person paying for expenses. If you’re living on a tight budget, consider ditching your car for a communal vehicle such as Zipcar. Or, you might consider getting a roommate to cut your rent/mortgage costs in half. Just account for higher utility bills.
- Track your expenses. You’d be surprised to find that there are many “leaks” in your spending budget—eating out too often, buying too much junk food, and spending more than you should on designer clothing or other little luxuries.
- Start small. Many post-bankruptcy debtors are discouraged by their inability to save more than $40 or $50 per month. But that (or even less) is enough to get you started and give you a small emergency savings account. Even if you only saved $50 per month, that’s $600 in a year $1200 in two years. If you kept it up, in five years you would have $3,000 or more since it’s likely you’ll get raises or promotions in that five year timeframe.
If you want to enjoy the fresh financial start that bankruptcy promises make sure you pay yourself first.