The New Year is always a time for self-reflection. “New Year, New You” headlines abound, as people collectively seek ways to make resolutions that actually stick.
Generally, these resolutions are related to physical health: lose 10 pounds, cut out carbs, etc. While these can be honorable and positive goals, I’d challenge you to consider a different aspect of your health in 2018—your financial wellness—by committing to pay yourself first.
Three Words to Change the Way You Think
It might sound selfish at first blush, paying yourself first. But it’s not, once you understand what we mean by it. Although a simple concept, “paying yourself first” has the potential to completely re-frame the way you think about your financial life, which is pretty powerful for a three-word phrase.
Save before you spend.
The general idea of paying yourself first is to put money into your savings and investments on pay day, before paying bills and spending on short-term wants. This concept is closely related to the idea of reverse budgeting, or determining the amount you need to save each month to meet your goals, automating those savings and then spending what you have left. Since you can’t spend what you don’t have, this method works well for people that balk at the maintenance and minutia of traditional budgeting. (Learn how to set up your reverse budget here.)
Consider the savings potential of every dollar.
Positive thinking is a powerful motivator. Rather than focusing on what you can’t do or buy, consider what you can do now for your future. For example, “Do I have $5 to spend on this Starbucks?” might become, “This is $5 I could be saving toward my goals; would I rather have a latte or put it toward my future?” That’s not to say the answer can’t be “latte” (especially if it’s a typical manic Monday and you’re booked solid in meetings all day), but what matters is the new, savings-focused way of thinking.
Incorporate your charitable goals.
Paying yourself first doesn’t mean you have to disregard your charitable giving goals. It just means that you need to consider them in the same frame of mind as your broader financial life goals. It also helps to have an independent, objective financial planner who can help you consider all these things at once. For instance, you might be surprised at how much money you’re currently paying in taxes could be going to charity, just by formalizing a tax planning strategy.
Financial health is an important component of your overall wellness, and it may be more closely tied to your emotional—and ultimately physical—health than you might think. Give the “pay yourself first” method a try, and I think you’ll find a noticeable shift in your outlook as your view of spending shifts to one of saving.