Pay yourself first means bill payments to Us Inc.
Pretty much anyone who has read anything about personal finance has heard the mantra: pay yourself first. David Chilton popularized this mantra with The Wealthy Barber and reinvigorated it again in The Wealthy Barber Returns, two of my favourite personal finance books by the way.
I’ve been giving this financial rule some thought recently, and how it applies to our personal finances, specifically how we manage and build our emergency fund. Here’s what it means to us: it’s a bill payment.
- Payments to Us Inc. are automatic. We have a super simple automatic savings plan. Every month, $200 from our chequing account is automatically transferred to our emergency fund. We must find a way every month to ensure this “expense” happens. Now that our line of credit is paid off, we need to pay this bill like any other around our house. Actually, this payment is a line item in our budget, just like the mortgage, our cell phone bills, our hydro and our gas bills to name a few.
- Payments to Us Inc. have a timeline. These $200 automatic payments won’t last forever. For our financial situation, we’ll keep doing this until we meet our emergency fund target: $10,000. We’re definitely not there yet, hopefully in another couple of years we will be. We need this account because some of the major things we own, like a car, will break down at some point. This is where our emergency fund will come in handy – we’re planning for the unplanned. When we reach this threshold we can stop these bill payments and divert the money elsewhere, to more debt and/or more investments.
- Payments to Us Inc. are not to be touched. Like any bill payment, once it’s paid, you rarely get an opportunity to get your money back. Once the payment is gone to the payee, us in this case, that’s it. Money that goes into our emergency fund is truly that. This is not spending money or fun money. Money that needs to be spent, for fun, for travel is saved in another account.
In closing, I guess we consider Us Inc. a creditor, someone we owe money to. Bills are paid every month to Us Inc., on an automated schedule like many other bill payments to grow our emergency fund for the “what ifs” in life.
There are many other angles to ”paying yourself first”, investing in your RRSP, TFSA, RESP and other accounts tend to come to mind and take center stage. When it comes to our emergency fund though, we’re trying to KISS it all the way (Keep It Simple Saver).
What about you? Do make bill payments to Us Inc. or Me Inc. for savings, for investments or both?
For more reading on this mantra and David Chilton, check out this article from the Vancouver Sun a few months ago.Thanks for reading and sharing this article.