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How To Pay Yourself First : The Saturday Weekend Review #287

Pay Yourself

PAYING YOURSELF FIRST IS A GATEWAY TOWARDS FEWER WORRIES

When some people read about paying yourself first on blog posts or in the media the first thing they think to themselves is, How.

How am I going to pay myself first when I have bills to pay?

What does paying yourself mean?

Paying yourself first simply means paying money into your savings or other investments prior to paying your bills.

Well, there is a way to pay yourself first and yes it has to do with budgeting but first, it starts with a mindset.

Did you just say this to yourself?  If I don’t pay my bills I won’t have a place to live or food to put on the table.

Perhaps you should consider if your budget is too tight then it needs to be slimmed down or you need to earn more money.

I know that’s not something anyone wants to hear but it’s the bitter truth and one that means the difference between savings and no savings.

Below is the story of my early beginnings about building my pay yourself mindset in the early ’80s.

The Pay Yourself First Principle

One of my earliest memories of financial awareness was when I started my paper route.

I remember my first paycheque and the day my dad drove me to the bank to open a bank account.

My first bank account was just a savings account as I didn’t really need cheques at my age.

As we opened the bank account I asked my dad if I would be able to buy a new bike?

My dream was to save my money for school and a new car, and I did eventually.

At that moment my dad pulled me aside and said, “Son, you need to pay yourself first”.

What do you mean I have to pay myself first, I thought?

I wasn’t shy and my dad and I were close so I asked him why?

I thought to earn an income by having a paper route and depositing the money was paying myself first.

The problem was I had no bills to pay so as a young child I could only see the money as, extra cash in the bank.

You Need To Get Paid

During the conversation, my dad explained to me that I need to set aside a portion of my cheque every pay for the work I’ve done.

This money would stay in my savings account so I could buy a new bike, save for school and my first car.

He knew what my financial goals were at the time because we had discussed them months before.

I was a boy with dreams of riding a bike, career motivation and having a car to drive that success.

Not too shabby for a 10-year-old. I think I was 10, it was so long ago.

Perhaps 9 but either way my financial mindset was taking shape and that’s where it all began for me.

Be A Money Boss

Back in the ’80s, we didn’t open more than one savings account to move money around like we do today so I manually tracked my income.

My dad and I bought a little diary from the shop where I set up columns with the date, cheque amount, savings amount and spending money.

I wasn’t a big spender but it was always nice to have some money set aside when we would go on road trips, class trips or just hanging out with my friends.

It was nice to be in charge of how much money I had to spend and not have to rely on my parents like some of my friends did.

Most times their parents told them they didn’t have any spare money or ability to pay an allowance.

My allowance was getting a job and I jumped at the first chance to run the neighbourhood paper route when the boy up the street quit.

I guess in a way I was the rich kid in my circle of friends but the only one of 3 who had a job.

Pickings are slim though when you are young so in a way, I was just fortunate that an opening came up for a paper carrier. 

Should you pay yourself first?

One of the easiest ways to put yourself on a savings plan is to pay yourself first even if it is a small amount.

This forces you to find alternate ways to save money by spending less and earning more cash flow.

Eventually, I did that as I got older as my wage went up and I was offered positions in other companies through education and experience.

I never stopped paying myself first because I knew that it was the only way to achieve my financial goals.

So, this might mean you don’t have as much money to spend on concerts, road trips, clothes, toys, home decor, tools, etc.

This is where you have to be frugal-minded and work with the money you have in your budget left after paying yourself first.

The benefits of doing so are huge.

Should I Pay Debt Before Paying Myself First?

I believe everyone needs a balanced budget which includes paying off debt and investing for retirement and savings.

While we were paying down our mortgage, for example, we were still investing in retirement and paying into workplace pensions.

However, our savings percentage wasn’t as high as we would have liked it at least we were saving something.

A large majority of the money went towards paying extra mortgage payments, emergency savings, and retirement funds.

We did both because you need to have money for emergencies and getting rid of debt is also a priority.

Balance is always key although not everyone agrees with this mindset as they would view missed opportunities for investment growth as a bad thing.

It may well be a smart move but investments are for the long-haul and not to be used as cash for those times you need it most.

For example, if your mortgage interest rate is low one might want to invest the extra money into an investment vehicle that potentially or statistically could earn more than the mortgage interest rate is costing.

However, the other thing to consider is that investment accounts and interest rates fluctuate so there really isn’t a right or wrong way.

Do what works for you because we all have an investment risk tolerance level and ours was nowhere near high.

Benefits Of Paying Yourself First

  • Emergency Savings

Everyone will at some point have an emergency happen in their life that requires cash money.

The benefit for saving for this time or perhaps many times over the course of your life far out-weigh frivolous spending on stuff you don’t need or can do without.

The choice is yours, pay yourself first or struggle to find cash when you need it most.

  • Financial Awareness

The more you do it the better you get at it and it becomes a way of life that brings you financial awareness.

It’s interesting how people who budget, pay off debts and save money wonder why it took them so long to start.

Not doing anything with your money vs. trying to understand how to make money work for you goes a long way.

  • You Deserve It

You work hard and the money you make should at least produce some form of savings for you.

This type of money is supposed to help relieve financial stress over time and build a nest egg for your future.

How much do you pay yourself first?

When creating your budget you should know exactly how much money you will net each month or have an estimate based on previous months.

If you have irregular income take the last 3, 6 or 12 months if you can and come up with an average/estimate by dividing your net income for the year by 12.

Our monthly budget includes things such as allowance, entertainment, holidays/road trips and so on so ensuring your budget categories are strategic to your lifestyle is important.

This gives you an opportunity to spread your money further when you budget it wisely in areas you know you need money for.

Paying yourself first also doesn’t mean you hand yourself cash every time you get paid.

Paying yourself first may include the following:

  • Work Retirement Savings Plan

On our monthly net worth updates what you don’t see is that I also get a defined benefits pension that I pay into every month at work.

I don’t have a choice for this but many employers offer a retirement savings plan where they will match a certain percentage if the employee pays into it.

It’s FREE MONEY. Don’t miss out on this opportunity.

  • Investments

As you will notice on our monthly budget we have an investment category and emergency savings.

With-in the investments category, there are our retirement savings accounts that automatically get paid every month.

Setting up automatic payments for your investments means that you are paying yourself first without doing a thing but earning the money.

  • RRSP’s
  • TFSA
  • Non-registered Investment Accounts
  • Locked-In Retirement Account (LIRA)

Related: Should you invest in an RRSP, TFSA or Non-Registered Investment Account? 

  • Savings Account

We have 3 savings accounts with Simplii Financial where we juggle money around for projected expenses, bills, savings, investments, and emergencies.

Any time you earn extra cash from doing side-jobs, selling stuff, online surveys, focus groups or hosting students, etc. pay yourself first.

That money is extra money that you can put towards debt or if you are debt-free can be invested or used to build emergency savings.

For example, all of the money I earn from this blog goes into a high-interest savings account for business transactions and savings.

  • Emergency Savings

You don’t have to have as many bank accounts as we do but make sure you have some liquid money in the bank.

It’s a smart idea because even releasing money from a TFSA takes time.

Trust me, we’re doing it now for my mother-in-law and it’s a process that doesn’t happy as fast as an ATM machine.

We always keep up to 1 year in our emergency savings account for our monthly budgeted expenses by paying ourselves first.

In a way, though you will notice our emergency savings are based upon what is left at the end of the month after paying ourselves first and our bills.

That means it fluctuates from month to month but if you are building your emergency savings plan to set aside even a bit to build up your stash.

What is an example of Pay Yourself First?

This is our pay yourself first method and yours might differ but it’s an example of how we do it for our family.

I would highly suggest that if you are new to paying yourself first that you make it an automatic process until you get used to it.

For example, our investments are set up and come out on the 27th of each month but we don’t keep high amounts of money in our chequing account.

My paycheque gets deposited into our savings account and then we manually move the money to the chequing account to pay bills.

This is because we have adopted a system that works for us over the years and one that will happen with you the more you do it.

Consistency is the key and making finance a priority on a daily, weekly and monthly basis will build your confidence in shifting money around.

Some banks in Canada also offer automatic money transfers between accounts so you can set it but not forget it as you always need to monitor it.

1. High-Interest Savings Account

Open a high-interest bank account with any bank that you prefer. It’s always smart to review costs for bank accounts and interest rates. 

We bank with Simplii Financial as I had mentioned above and we pay no fees and on occasion, they offer a higher interest rate special for customers.

Right now most banks in Canada are offering the same amount of peanuts for a high-interest savings account but it’s better than earning nothing.

2. Set Up Payroll Deposit To Savings

Have your employer or anyone who pays you money deposit that money into your savings account which means you don’t have access to it with your debit card.

When we use our debit card we only have access to our chequing account to draw money from so if there is no money in it then we have nothing.

Check with your bank to see how that works.

3. Transfer Funds For Bills

Once a month we transfer all of the money we need from our high-interest savings account to our chequing account.

The money will pay for our bills and investments which we have all set up for auto-payment.

It’s critical that you set a schedule to do this or see if your bank can auto-transfer so you don’t miss payments.

The idea is that if you keep the money in your savings you won’t spend it. Does that make sense?

If you have all of your money in your chequing account odds are you will spend it faster.

Those of you using credit cards like cash and think you will pay it off at the end of the month are a different story.

Make it a priority to pay it in full every month and if you aren’t considering changing the way you handle your money.

Related: Magical Budget Jars Helped This Couple Pay Down Debt

Pay Yourself First Starting Small

  • Spend Less Than You Earn and Save More By Developing a Frugal Mindset
  • Save Extra Cash You Earn or Are Given By Paying Yourself First

So, I eventually got my new shiny bike, paid for my education at University, bought a car, a house at age 21 and another at 24.

Paying yourself first is about accountability, building authority over your finances and setting standards for the life you want to create.

Start small when you begin paying yourself first like I did and eventually it will become second nature.

You won’t even know it’s happening, hence the saying, “You’re Richer Than You Think“.

Discussion: Do you pay yourself first and if so what is your process for doing so? Please leave me a comment below as I enjoy reading your feedback.

Mr.CBB

CBB Posts You May Have Missed

Below is a recap of the blog posts I’ve published over the past two weeks so you can catch up on your reading.

Mr. CBB’s Motivational Corner

Life Quote

I’ve been thinking quite a bit about life, end of life and healthcare in Canada lately.

What I’ve come to realize that we won’t really know if we’ve made the right decisions until the end.

This simply means that until something happens whether it is today, tomorrow or in the future how the situation unfolds is based on actions we take today.

I’m not sure where I will take this life thought above but it’s definitely weighing on my shoulders.

Have you ever thought about what life might be like for you in the end?

Fan Deal Of The Week

How to get your deal featured on Canadian Budget Binder.

If you have garage sale deals or any other deals that you want to share with our community email me.

Simply send me a photo of the deal, what you bought and how much you paid for each item.

September Canadian Garage Sales

Today’s deals:
  • Exercise step $5
  • Boys shorts and track pants $.50 (asking was $1)
  • 10 mini recycle bins (1 pictured because Connor was playing with them all) and a small package of mini umbrellas that go in drinks (not pictured because Adam was playing with them lol) $.50
  • Total spent: $6
Thanks, Jen 🙂

Frugal Recipe Of The Week

roasted vegetable salad

I’m a huge salad fan so when I stumbled upon this Roasted Vegetable Winter Salad on the Frugal Living NW website I was intrigued.

I know it’s not wintering yet but the chilly weather is already visiting Canada and it’s only going to get worse.

I’ve never made a roasted vegetable salad before and wanted to know exactly what vegetables I needed to use.

The first thing that came to mind were any vegetables that I could put on the BBQ such as;

  • Green and Red Peppers
  • Asparagus
  • Zucchini
  • Tomatoes
  • Corn
  • Brussel sprouts (grilling bowl)
  • Potatoes
  • Radishes (grilling bowl)

For this recipe blog owner, Angela uses roasted Brussel sprouts which are delicious along with potatoes.

She pairs the vegetables with pumpkin seeds, mixed greens, quinoa, dried cranberries, and fresh avocado.

Are you drooling yet?

The balsamic vinaigrette dressing she chose is perfect as it will bring out the roast on the vegetables.

Winter Salad with Fresh Greens & Roasted Vegetables
serves 4-6

2 c. uncooked quinoa + 3 c. water + 1/2 t. salt
1 lb. small gold potatoes, halved or quartered
1 lb. Brussel sprouts, trimmed & halved
2 T. olive oil + salt
6 c. greens (kale, spinach, lettuce, chard)
4 T. pumpkin seeds (pepitas)
4 T. dried cranberries
1 avocado, sliced

Home and Blog Update

Vegetable garden

Blog Update

The blog is coming along nicely but not as fast as we had anticipated as we have had setbacks that we are dealing with.

I’m happy to report that income on the blog is doing better than it has ever done since I started earning extra money a few years back.

I made lots of mistakes I can’t take back and lost money by not monetizing the blog but moving forward that’s not the case.

Blogging is a learning experience and one that anyone can do and create a work from home position from.

Many of my blogging friends have quit their day job to blog full-time. I won’t be doing that however it is possible.

Home Update

Now that the leaves are turning colours we are getting ready to start our fall clean-up.

Actually, we already have but we don’t get into full mode until after Halloween.

I’m planning on covering up the deck table and swing this year instead of bringing everything in as it takes up too much room.

The reason for this is to preserve the furniture so we are not buying it year after year and so far it has worked.

The bathroom reno is almost done but now I need to find time to get in there and do it.

I have a bit of painting to do and still need to order fixtures and buy a shower curtain.

I’m hoping to have that done by the next time I’m back to write this post again.

Garden Update

Last week I cut all of our parsley and made a puree from it with olive oil and salt then put it in the freezer in small batches.

I also have a large bunch of parsley drying on the freezer in our basement as I have the dehumidifier running.

I will use it throughout the year in any recipe that requires herbs which is almost all of my cooking.

We had a bad year for basil and I’m going to say it’s because our little guy was watering the pots with the hose.

Next year we will have to be careful about that.

Our peppers are in abundance and we are actually surprised how well they did growing in pots as did our cherry tomatoes.

Living in the Toronto area means you don’t get much property so we almost everything we grow is in pots.

The chives and dill have been laid to rest but next year I’m planting triple the amount as we could have used more.

Our stevia has been harvested, dried and blended for use.

I will have a blog post recipe on that one day so look for it if you’re interested in the process.

Have a great two weeks everyone.

Mr.CBB

Saturday Search Term Giggles

Every week I get tens of thousands of people who visit Canadian Budget Binder because they did a search online and found my blog.

Yes, I can see your search terms and sometimes they are funny.

  • Regicnishion later: Yes, that should say, resignation letter. Almost.
  • Best stores to steal from: Um, none.
  • Walmart or Metro cheaper: Ha, ha I’ll give you one guess.
  • Easy letters to wright: Oh boy!

If you see the acronym (SIC) next to a word that means I’ve copied the text exactly as it was typed in Google and it has spelling errors

That’s all for this week my friends, see you again in 2 weeks for the next Saturday Weekend Review!

Mr.CBB

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2 Comments

  1. Hi Mr CBB!

    My one comment is about the amount in your Emergency Savings… 1 Year of Net Income is probably fine if you are under 35 yrs of age. Between age 35-50, I would recommend 2 years worth and for 50-60 yrs it increases to a 3 year buffer. You might as well say 60+ is 4 yrs worth to act as a bridge loan until you can start drawing CPP and OAS. The reason for the escalating savings need is that as you get older, it’s harder and harder to replace your current employment income stream at the same level you previously held and it may take longer than expected to find a replacement income at all. Ageism is alive and well in this country even if we don’t like to admit it. On the plus side though, as your need for Emergency Savings increases over the years, your life insurance needs decrease because you aren’t attempting to cover replacement income for as many years.

    This having been said, we currently have 2 years in our Emergency Savings and are working our way towards having 3 years even though hubby is closer to 60 than 50. We’re a little behind but I do have investments that could be liquidated if need be so we’d have 2 years to decide whether or not we would need to liquidate.

    Our term insurance is up for renewal in 2025 and rather than renew the 4 policies we are going to let them expire. Because we are debt free and do not have children, we will funnel those payments into our Emergency Savings. I will still have a whole life policy and as long as hubby is working…he’ll have his group coverage life insurance for 2 times his annual salary. I am good with that. By the time he retires, I’ll be starting to draw down my RRIFs and won’t be relying on his salary for our income. 🙂

    1. Hi Mary,
      You know you bring up a good point about emergency savings as you age and you are SO RIGHT.
      I never thought about it but should have given the situation we are facing now with my mother-in-law.
      I did touch on it in the post how we had to pull all of her TFSA’s because she needed cash fast.
      That process took about a week for us.
      Thank you for this feedback…. even more to consider.
      We changed our Life Insurance policy but I haven’t blogged about it yet. Basically it’s in part whole and we are investing in it since we no longer have debt but have a child. Our son also has life insurance that we pay for 10 years and he’s good for life.

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