Personal Finance: Pay Yourself First

I've heard that automating savings is the best way to ensure that you are regularly putting money aside. When you plan to put remainder income into savings at the end of a week or a month, it can be difficult to see real growth in savings accounts. I've heeded this advice and implemented it in two ways:

First, I set up retirement accounts at every job I've had as soon as it was available to me. With Bank of America, I didn't become eligible immediately, but I received the benefit of a company match of up to 3% of my salary. With the City, I was able to establish my 401k immediately, but unfortunately, and this is probably a common situation, there is no matching contribution. 

To compensate, I upped the percentage of my own pre-tax contribution from the 5% at Bank of America to 8% with the City. On top of that, I established a pension account into which another 3% of my salary goes. I figured out that I can contribute at this higher rate because I am saving a significant amount of money on health insurance. In total, 11% of my income is going toward retirement without my ever seeing it. 

I've been with the City for 2 years and my retirement accounts are seeing slow and steady growth. This is a great comfort. 

Second, as I've mentioned before, I began using a budget spreadsheet in January. It's done wonders for my financial planning and has made me very mindful of where my money goes. 

Each month, I have a line indicating the amount of money I plan to save based on my take-home salary and other expenses (including a "spontaneous spending" category as a buffer). This is the amount I transfer into savings at the start of each month, so that the money is out of my bank account as early as possible in the spending period. 

This second approach isn't automated, but I've found that it actually allows me to save more when I can, which is something I couldn't have imagined doing just last year.