Hello, I'm your host, Mr. Chuck, I'm going to start out this episode with by talking about some Christmas tips on how to save money. I know it's a little late, he can incorporate it throughout the year, whenever there is an occasion to buy gifts, then I'm going to talk about pay yourself first, why, and then how he should do it. But more information about this podcast first, and I'll be back in 30 seconds. Welcome together, we're going to explore our personal finances and figure out how to improve them reduce debt increase wealth.com is a podcast to educate, to improve personal finances, whether it's eliminating debt, or making smart investments, Christmas gifts or any gifts throughout the year that you may be given, are categorized to ways needs. And once What you need is items that you will be buying to anyway to for that particular person once or gifts, that you buy, something that they really want, but not necessarily need. And you can apply that strategy throughout the year. Let's say you have a child whose birthday is an A May, early June. gifts they may need would be shorts, maybe new shoes, socks, underwear, sweat always got and gifts they want, when maybe a video game or something along that line, something they really don't really need, but they really would like to have. So if you can incorporate more gifts of need and to the occasion, then you're not spending more money because the gifts of needs are gonna be items that you're gonna be buying Anyway, you put them in a box, wrap them up and give it as a gift is a good way to keep your budget under control. When I was a kid, I can tell you, from the time I was in probably junior high up through college, when I went home for Christmas, I could tell you what I would get for Christmas socks, underwear almost every year, but I needed those items. So it was a useful gift, something that I would use throughout the year. So keep that in mind and try to apply that to every gift giving occasion that you have, because it could save you money, and maybe not make that person happy at the time that they'll be thankful that they have those items when they need those items. pay yourself first how you do it, and why you should do it. I'm going to start out with the why. And the reason why you should do it so that you can build up a savings account. And we also refer to as a emergency fund. And Did you know According to bank rate, the majority of Americans, as many as 60%, don't have enough money saved up to pay a $1,000 expense. If they came up at the last minute. That also means they don't have enough for future expenses or luxury. But it doesn't have to be that way. Especially if you're following this simple strategy to pay yourself first. You can see in my show notes, the link to this it's investopedia.com pay yourself. So that's the golden rule. But how do you achieve that? Now you know why because you need the money. Well, one of the things if you've been following his podcast, my debt reduction plan is what do you do first, quit creating new debt. That's number one. Number two, pay the minimum on all You're debt, that will free up some money. So if you pay yourself first, how you gonna do that? The easiest way is if you have a retirement plan through work, and your employer has a match, you want to contribute the maximum amount that you can get the maximum amount of the match, the most common amount is 3% of your gross pay. So you contribute 3%, and your employer will match you 3% free money, it's not taxable to you until you take it out of the retirement plan, hopefully years down the road. So that's number one. If you don't have retirement plan through work, you need to set one up yourself and put in at least 3% or 5%. Get started sooner, the better. The younger you are, when you start savings for retirement, the better off you're gonna be when retirement rolls around. Ask any financial planner, as any senior citizen, did you start saving for your retirement young enough or early enough? Should I start to start one today, and they're gonna tell you if they are knowledgeable about finance? Yes, start as soon as you can. Then you got to put in some extra because that's only 3%. And you should be having a goal when you're first starting to save 10% of your gross pay. So you already got three, you need to come up with the other 7% and put that in to your savings account. And the easiest way to do it is to if you have direct deposit through work, ask them if they can split it out and tell them you won 7% of every paycheck to go into your savings account, then you'll never miss it. Go into your savings account, the balance will go into your checking account, you forget that you have that savings account, and you live on what's left in that checking account. That's the easiest way to do it. Over time you'll increase it because the budget rule the 50 3020 that 20% is for your savings and credit payments. So the less credit cards you owe, the less loans you have, the more you can put and to savings. Pretty simple, huh? What does it mean to pay yourself first and the pdf.com? Well, the concept of the pillars of personal finance and consider the golden rule by many financial planners. Not only do financial planners suggest it, but there are plenty of books that describe this strategy is probably very likely your parents are giving you this piece of advice to the basic idea behind paying yourself first is simple to understand. By paying yourself first you're basically socking away some cash for yourself, whether it's into a savings or retirement account. Do this before you do anything else before you pay your bills, buy groceries, give your kids their allowance. Or buy that brand new TV, make sure you set aside a portion of your income to save. Think of personal savings as the first bill you must pay each month can really help build tremendous wealth over time. By starting with a small amount like $100 on money use percentages because everybody's pay is different. If you go if I just go by percentages, you can apply it to your pay. No matter how little you make or how much you make. It's gonna work out he should be good. If I'd say $1 amount, if you make very low income, it might be too much and you might get discouraged and when Do it. So I'm going to use percentages. By using automatic payroll deductions, which we already talked about, you probably won't even notice the withdrawal after a few months, or even at your start out with $50 a month, you're one step ahead of the game, you might even find that you can increase the amount when every time you get a pay raise. If you're using 3%, or 7%, it will automatically adjust for you. So if you get a pay raise 7% of a larger number is going to be a bigger number. So it's automatically adjusting for you. If you get a bonus, you want to apply it to that bonus also. Okay, and it goes about how regular and steady contributions extra wit excellent way to build a large NES, the most first obvious way to do is open up savings account. He can do this by going to the bank where you hold your checking account. The main advantage of doing this is you have easy access to make transfers or deposits as soon as you get paid. Some banks allow you to set up automatic transfers. So you can set them up each pay day or once a month, whichever works for you. The other options to look for an online bank, these generally offer a higher interest rates than brick and mortar banks and you lose the temptation to use the money. When you do your regular banking, it's a make it harder to get at and you're less likely to try to get into that money, then it's talking about your 401k. And you also can use a tech once you get like 5000, you can use us at buy a certificate of deposit from a bank, it may pay you a higher rate of interest, but got to make sure you don't need that money. Also, once you pay all your bills for the month, or for the pay period, and you leave say 300 or $500 in your checking account as a buffer, anything over your buffer amount, he should transfer to your savings account. So over time, you may end up saving more than 10% it may be 15% or it may be 20%. Then you want to build up an emergency fund, say three months worth of income to make it simple. Any amount over that you can use to pay down credit card debt. You want to pay down your highest interest rate debt first, and then work your way through that. And then maybe car loans line of credit against your home, and then your first mortgage. It's all about mental strategy. Once you start doing it, it may be difficult at first, but over time, it becomes easier. You get in the habit of doing it, it will become easier. Just like getting out of the habit of overspending is difficult at first. But with three to six months of having yourself on a budget and following a budget fairly strictly, you'll start becoming easier to stay on a budget and you won't have to think about it over time it become natural. It just be okay I can put in 15% of my pay. And I still have plenty of money to pay all my bills. Once you get to that point you got it made. It's just a matter of time you get those credit cards paid off, you get a car loan paid off, maybe the second car loan paid off, maybe your line of credit against the house, they used to remodel the home, get that paid down. And what are you doing, you're building more equity, you're building more wealth for yourself. Because the more things you own, the less you owe, the more you're going to be worth your net worth will go up. So that's the first article. Then how are you going to do it? Well, that B word comes into play again. The easiest way to make sure that you Don't overspend is have a budget. Man, I wish you wouldn't have said that. That that makes life a whole lot easier. So you pay yourself first, you're doing a reverse budgeting. So instead of budgeting all your money, income, and to what you pay, the first expense you have is yourself. You pay yourself first. That's your number one expense that you pay every pay period. whatever percentage you decide on, depending on how much you have gone into retirement at work, then you can have a little bit less going into your savings but depends on how much you make and how much you owe. The last you owe people, the more you can pay yourself. The more you owe people, the less you're able to pay yourself. So how does a reverse budget work? And this is an article in my show notes, it's from nerdwallet. pay yourself first reverse budgeting explained by Lauren swan. pay yourself first is a reverse budgeting strategy where you build your spending plan around savings goals, such as retirement instead of focusing on fixed and variable expenses. This prioritize savings but not at the expense of necessary expenses, like housing, utilities, and insurance. How to pay yourself first budgeting works. Use these steps to set up your own reverse buttoning. And then they got a bunch of steps, assess your spending, what are you spending it on to determine how much you pay yourself. Use the 50 3020 budgeting approach 50% for needs 30% for once 25% for savings and debt payments. Kind of simple. Kind of not identify your savings goals? Step three. And of course, eat just as needed as you go along. You're always making adjustments, or as I refer to is fine tuning. If you never had a budget before, where do you start? Do you just make up numbers? Do you say well, I should be spending 30% for housing. So I take my net pay, I take 30% of that. Okay, that's my housing, I should spend 8% for transportation. If you do that, if you don't have those expenses yet, that would be a good goal to try to stay in. When you're going to buy a home or do get your first apartment or buy your first car, then those are some numbers as a guideline. So you don't overspend. But what happens if you already have a home and two cars, and three children. And a spouse that may be used to work that don't work because of childcare costs is way too much. So you have one of the spouses stay at home, taking care of the children and the other one coin to work. You're already there. You're already doing all that? How do you set up your first budget? It's a simple and easy approach. Go back two or three months, at least two months. I'd say three months. You can look at your check register, see how much you spent and then categorize it. Housing, utilities. And I would categorize it not net say housing, utilities, groceries, you know food and entertainment. I would start out by categorizing one debt. Well number one should be pay yourself first savings. 10% put that number down. Number two, debt debt would be everything that you owe that you pay every month. That would be your mortgage line of credit, car loans, credit cards, on the credit cards only include the minimum payment, they require you to pay. That's part of my debt reduction plan. only pay the minimum. I know it sounds counter effective, but this strategy will work. So you got number two, all your debt. And then number three would be utilities, things that you have to pay every month, gas, electric, water and sewer trash, TV, internet, stuff like that. utilities, number three, transportation. Now your car payment should be included in debt to transportation would be gas, oil, oil changes, gasoline, all your car maintenance, stuff like that. tires, whatever. Now, there's going to be different from month to month, like when you get a set of tires put on the car, you're going to maybe go way over budget. But over time, it evens itself out. So if a set of tires are and cost you $400, and you do it once a year, divide 400 by 12. And include that in your budget. You don't really have to spend it but you're giving yourself some leeway there in case something comes up. So we got that we got yourself savings, debt, utilities, food and entertainment. gifts, maybe? And what are that so that you know you got four to five categories? lump them together, the less categories you got, the better off you're gonna be, because you're looking at your happy numbers. You got your net income, that's one number you should know how much is it per pay, how much is it per month, then you have how much debt you pay every month should know that number. Maybe not so happy number. Then you have your utilities, then you have food and entertainment, maybe clothing, transportation. You know all these numbers memorized, you know what they are on a month to month basis. He know it total income for the month, you know your probable expenses for the month, income less expenses, leftover, that leftover amount if it's 50 bucks, or $1,000 savings account. That just means you didn't pay yourself enough first. build up that emergency fund mergency fund slash savings account. And when you get a 510 thousand in there, and if you need 5000 as your minimum in case something bad would happen. You got 5000 use that 5000 and pay off a credit card or apply it to some credit card debt. If he can pay off one or two of them. That's great. He can pay down one. That's great also. And that's it. It's a fairly simple plan. He just have to one get started. And then to stick with it. If you never start something you're never going to improve yourself. If you don't stay with it, you're not gone to achieve your financial goals that you set for yourself. I'll be back in about 30 seconds with my final thoughts. But first, here's some more information about this pot. You can share this episode with your friends, I'm open for any suggestions for improvement, or for information that you would like to hear about in the future. He can go to my Facebook page and leave me a message more than glad to respond. To find my Facebook page, go to reduce debt increase wealth.com and click on the Facebook icon. You want to start paying yourself first that's important. But in order to do that, you need to know Have a budget and start controlling your spending. That way you'll know that when you put money in your savings account, it can stay there. And the best way to do a budget is just look back to three months, figure out an average and streamline your categories. pay yourself first to how much debt you pay. Three, utilities, food and entertainment, transportation. Keep your categories minimize. That way. You know your numbers. You can stay on track and you can improve your overall life for the future.