Wednesday, January 30, 2013

It's Payday!!!! Did you pay yourself???

Whether you get paid weekly, every two weeks, bi-monthly or monthly, everyone loves Payday!  Our payroll person is the most loved person in the world on Pay Day!

So did you pay yourself?  Confused?  Let me explain.

Of course you get a paycheck if you are employed (hopefully!) and you live off of that paycheck, however, you need to get into the habit of paying yourself first.

Hopefully by now you are following a budget.  If you aren't, that's where you need to begin.  It doesn't have to be anything fancy.  I have mine set up on a spreadsheet.  If you don't have access to a spreadsheet program, pencil and paper will do nicely.  Notice I said pencil?  You will make mistakes or changes and tweak it here and there and you want your budget to be easily readable without a lot of scratch outs here, there and everywhere.

I'll explain this as if you are using pencil and paper.  Draw lines from the top to the bottom of your paper to make six columns.  The column on the far left is the bill column (house note, electric, credit card, etc.)  Everything you "have to" spend money on each month gets written down in that column.  You buy groceries each month so groceries are a "have to".  You have to have gasoline for your vehicle so Gas gets written down.  Everything you "have to" pay money out for each month gets listed in that column.  The very last item is "Left Over".  That's the money that you have for take out food, clothing, etc.  Why do I lump everything in the "Left Over" and not have line items for those things?  Because to me, you shouldn't have a monthly budget for clothing or fast food.  If you feel you need those items in your "have to" list, then you are not going to truly cut your bills and save money.  It's a NEED TO HAVE versus WANT TO HAVE thought process.  Do you have to have McDonald's take out tonight because it's been a crazy night picking up the kids and running errands?  NO!  Peanut butter and jelly sandwiches with a piece of fruit work just as well for dinner and the kids certainly won't mind, not to mention it is a hell heck of a lot heather than the fast food.  Do you have to have a new wardrobe every week....odds are....NOT.  You may want to have new clothes every week but you don't have to have new clothes every week.

Back to the budget.  The second column is the date the bill is due.  This is very important.  The reason is you need to know which paycheck you are going to pay which bill out of and make yourself do that each month without fail.  For example.....I get paid bi-monthly on the 15th and 30th.  I have one bill that is due on the 15th every month.  When I get paid on the 15th, the second thing I do, after I pay myself, is pay that bill so that it is paid on time, and never ever late.  This builds your credit, which you already know, so enough said.  I have another bill that is due on the 4th of each month.  I pay that bill out of my check that I receive on the 30th so it's always paid a couple of days ahead.  I know without a shadow of doubt  each pay check what bills get paid out of that pay check and it doesn't waiver.  So write the due date down on all bills that have it.  Only worry about the bills that have actual due dates for now.  We will figure out the other bills such as gasoline and groceries in a minute.

The third column is the amount due for the bill.  Any bill that has a set amount (mortgage, phone, etc.) put in that column.  If you are have a credit card that you are trying to pay down and say are paying $50.00 on, put that amount next to the credit card.  You want to be realistic on these type of variable bills to get your budget going.  Put in what you can honestly, definitely pay each month.  We'll work on paying these down later.

Now, you should have three columns left.  Maybe you are like me and get paid twice a month.  You have the 4th column for the first pay check and the 5th column is for the 2nd pay check.  I actually have my pay check amount at the top of each of my two columns so I can clearly see what my left over amount is expected to be till my next pay check.  I put a check mark in the column for the 15th for by each bill that I am going to pay out of that pay check, and I do the same for the 30th so I can see clearly what gets paid.  Maybe you get paid weekly, then just add a couple of more columns.  Turn your paper sideways and do your budget that way if you are going to have more than six columns.

The very last column, the column on the right, is the actually paid column.  Write down each time you pay your bills or buy groceries, etc. what you have paid out in this column.  On your set bills (mortgage, phone, etc.) the amount should be exactly what your third column line amount is.  The only variances should be things like gasoline, groceries, etc. and left over.  After one month you will be able to see how what you budgeted for things like gas, groceries actually measured out.  Tweak as necessary.  And you will be able to see how realistic you actually were about the amount you should have "Left Over" each pay period.  Remember we are going to talk much more about the "Left Over" line item in another post.

Now let's go back and talk about things like gasoline.  Do you know how much you spend on gasoline each month?  If not, think about how many times you fill your tank each month and how much you pay.  If you use your bank card to pay, then go get out your trusty dusty check register and add up what you have paid for gasoline for one month.  Do you get gas twice a month?  The write down gas on an additional line, split the total cost for the month and put 1/2 the cost on one line and 1/2 on the other line.  Odds are that payment is going to come out of different pay checks.  Maybe you buy groceries weekly and get paid every two weeks.  Total up your groceries for the month (from your check register), divide by two and put that line item down twice.

Now that you have all of the names, dates, amounts and check marks plugged in, you now have your base budget.  Take the amount you get paid each pay period  and subtract out what is to be paid out of that pay period and that's what goes into the "Left Over" column.  The truth is doesn't matter if that amount is $5, $25, $50, $100 or whatever.  That is a great area to pay yourself first from.

For example, I actually pay myself first (twice).  That's weird.  Lucy explain!  Simple enough.  I have direct deposit so I get a pay stub each pay period.  On that pay stub it shows my paycheck amount deposited into my checking account.  It also has a second line item that shows the amount that I have automatically deposited into my savings account.  So when I receive my pay check I have already paid myself first, once.  Now I don't pay attention to my savings account, other than to write down the automatic deposit or add in any additional money I have been able to pay myself that month.  This account is for savings for big items (like the redo of my kitchen that I am planning for this Spring).

How do I pay myself first, twice?  Easy.  When I set up my budget and saw my "left over" amount, I challenged myself to save a little bit more by transferring a set amount into my savings the moment I get my pay check.  So, when I get paid, the first thing I do is to transfer a set amount from my checking account into my savings.  Right now I have that set on my budget at $50.00 That's the very first thing I do.  Why don't I just make it easier on myself and raise the amount I automatically have taken out?  Because life happens of course.  What if I know that I am going to have to take the dog to the vet.  That's not an item that I have listed as a line item on my budget.  I might need that amount for the vet bill.  It's a little bit of a crap shoot so to speak each pay period as to whether I am actually going to be able to pay myself first twice, but I make it a point that as soon as I get paid I transfer that money.  If I absolutely, positively, HAVE TO HAVE IT, and find no way around it, then I can always transfer it back into my checking account.  However, what I have noticed, after doing this for a while, is that 90% of the time I didn't need it.  So now I have increased the amount of money I have in my savings by paying myself first, twice.

The point is that when you get paid, you need to put something into savings.  It doesn't matter how much.  $1, $5, $10, $20, $25, they all add up.  The point is to make yourself put the money into some other savings account and don't touch it unless you absolutely, positively, no other alternative, have to touch it.  After a very short time of doing this you will be amazed at what you are able to save.  Trust me that once you get yourself disciplined to doing this, you won't miss the money and you will learn to live off of what you have budgeted for yourself each month out of your pay check.

So, today's the 30th.  I got paid and I paid myself twice!  And.....I actually paid myself a little bit more.  But we will talk about that more in another post.

Till then, don't forget to pay yourself first!



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