“Pay yourself first.” You often hear this advice from personal finance experts, but it’s rarely followed. What it means is that before you even think about paying bills or debts, you should put some of your income into savings for long-term goals, such as owning your own home, sending your child to college or enjoying a comfortable retirement.
But that just isn’t possible when your entire paycheck is gone almost the minute you get it. So, how can you ever pay yourself first? By plugging up the drains that are putting your money into other people’s pockets instead of your savings for a brighter future.
1. Eliminate/avoid high-interest debt.
This includes credit cards and payday loans, and it’s the biggest money suck most of us face. We just don’t realize how much it costs us to use those cards; but if your average daily balance is more than, say, $700, you’re paying well over $100 per year in interest.
Eliminate: Some banks offer 0% APR for a limited time (i.e. 12 months) on balance transfers. This will stop your interest from continuing to pile up and give you a chance to make headway. The pitfall is that these cards will usually nail you with an extremely high-interest rate if you don’t pay off the full balance within the time specified, or use the new card for any additional purchases. So, only go for this option if you’re sure you can make it work to your advantage, not the bank’s.
Avoid: Restrict credit card use to true emergencies or things you know you can pay in full before they start accruing interest.
2. Reduce insurance premiums.
Shop around for lower rates; this can save you hundreds of dollars a year.
3. Add up those little habits.
It might not seem like a big deal to spend $10 a week in the company vending machine … until you realize that’s $502 a year. Do the same calculation with other daily expenses such as that morning latte stop, store-bought bottled water (instead of refilling your own bottle at the drinking fountain) or pack of cigarettes. Once you see how much it’s really costing, you can decide whether it’s really worth it.
4. Cut entertainment costs.
There are plenty of ways to have fun that don’t involve a restaurant, bar or movie theater. Even a simple change like packing your lunch ($2 a day) instead of buying it ($7 a day) can leave you with a nice chunk of change in hand ($1250 a year).
Hopefully, these ideas will get you thinking about other leaks from your wallet that are taking more away from your life than they’re giving. Write down every single thing your money goes to for a month, and we bet you’ll spot some more opportunities to make your dreams of a better life come true.