Pay Yourself First

When my wife and I first started living together we opened a joint bank account. We had our salaries paid into our personal accounts and each transferred an amount each month, relative to our salaries, to the joint account to cover the bills.

We both worked full time, had 2 car loans, spent money on anything we wanted and saved virtually nothing.

Today we keep our ‘Emergency Fund’ at around 3 months of our joint outgoings, we save enough to run and replace 2 cars when needed, we invest in shares and still manage to live just fine.

The key to the turnaround was some organisation and ‘Paying Ourselves First’.

Firstly, we started getting paid straight into the joint account and transferring some of this to our personal accounts to cover our own expenses. We also decided on a figure we would each have just for us to do with as we wished.

I then made an annual plan on a spreadsheet of all the income and outgoings though the joint account, filling in the savings lines first. My spreadsheet has expenses down the left hand side and months across the top. For example, the cash ISA allowance is £3,000 so I put £250 a month in the spreadsheet for contributions to a cash ISA.

By doing this, the spare money, that we used to just fritter away, is now being saved for our futures. Now Greg Junior is on the way a bit of security is more important than ever.

We don’t get paid a fortune and the above on its own, whilst providing the lions share of the savings, is not the full story. By paying ourselves first (saving) we then had less to spend and we have cut our cloth accordingly. I’ve kept my car much longer than I used to, it’s now 8 years old, and we don’t have everything we want, but we are hardly deprived.

Basically instead of falling into the normal trap of getting some spare money and spending it on “nice things” we try to use a decent chunk of it to purchase assets (shares) that should in the future generate more cash (dividends).

I’m sure our system won’t suit everyone, but the security enables me to sleep at night.