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Paying Yourself First
Date Added: September 1st, 2005
Article provided by Troy Kearns

   One of the biggest problems for young investors is that they have never been taught how to save their money. Since the United States consumes most of everything in the world, it is easy to see why young people do not know how to save. However, saving is one of the easiest things to do, it takes a little time, but after a while you see the results of your hard earned money piling up.

   So you want to get started investing in the stock market but you don't know how to save your money. There is a simple system that many young investors have not heard about, and its the easiest way to save money without missing out on CD's, cell phones, concerts etc. This method is known as paying yourself first.

   What is paying yourself first mean? When you pay yourself you simply set aside a certain amount of money each month to go into an account that you will not touch. What this means is you determine how much money you want to save and then you decide which account that you want to put your money into. It's simple and easy to do.

   First you decide how much money you make a month. Then you take 15 percent of that amount, (you make $500, it's $75 a month) whether it is $15 or $100 that you save you will see the results. Second, you decide where you want to put your money. This could be a mutual fund, money market account, DRIP (Dividend Reinvestment Plan) etc. Then once you determine which investment gives you the best returns on your money, you set up what is known as an automatic deposit/withdraw. This is when money is automatically taken out of your savings or checking account each month so that 15 percent that you decided on is taken out and put into your investment. That is all you have to do.

   It is just like you are paying a bill after a while. Would you really miss $75 if it was something that you just didn't have anymore? No, probably not. You will not miss the money, because it is like you never had it in the first place.

   Why is this method the easiest way to save? Well, first of all it does not rely on your ability to save a certain amount each month, it relies on the computers who automatically invest your money for you. It is also easy because once you realize how you don't miss the money, and how fast it is adding up, you want to increase that amount to 20 percent or 30 percent.

   How do you set one up? There are many ways to do this. First, if you have a job you can ask your bookkeeper; if she can have your paycheck automatically put into your savings account. Then you never have to pick up your paycheck. Second, you go to whatever institution that you want to invest in and you ask them if they can give you an automatic deposit form. Finally, you go to your bank and you ask for their routing number (usually on your checks) and put it on the automatic deposit form, and you are saving. Generally, you have to select a certain day each month for when the transaction will occur, and it will happen every month on that day, just like paying your bills.

   I have been paying myself first since I turned 17; I am now 21 and have managed to save over $10,000 with this method. At first I started off with only $50 a month but after a while I was saving more and more. If I would have never started this method I could only imagine how much money I would have (probably $100) which I just kept spending when I had it.

   Finally, one of the best things about being a young investor and paying yourself is that you have time on your side. The early you get started the better, and by no time you will have enough money to pay the commissions of a discount broker and start buying stocks. So don't wait, find out how much money you either get from your allowance, job, birthdays, etc. Put that money away and you will be thankful.

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