There has been a bit of a flurry in the PF blogosphere about a new phrase: Paying Yourself Last.
Recently, I described how Paying Yourself First was a good thing to do and that I had started practicing this to make sure I can get ahead on my retirement plan. The funny thing is though I had been Paying Myself Last for a number of years though I guess it never really had a name back then.
"Pay Yourself Last" and What It Means
As stated in the earlier article, paying yourself first is a fully automated process. You get paid, you siphon off some money, maybe a percentage of your salary, and you forget about it. Nice and simple, easy to do and low levels of mental investment needed.
Paying yourself last however requires a bit more effort. It also relies of having a few things in place so that you can actually keep a track of how much you should pay yourself at the end of the month.
Tutorial for Mars Colonists
You get your pay on the 1st of every earth month. Let's say for the sake of argument, you get 1,000 Klicks (imaginary space money) take-home. Your split scheme kicks in and those automatic transfers you've set up take action. You send 100 Klicks to your Emergency Fund sitting in a high interest savings account on Earth, 50 Klicks to your Freedom Fund on Mars and you have to pay rent of $450 Klicks for your bedsit on the space station above the Red Planet's surface. Luckily for you, all your bills are included in your rent (solar power is extraordinarily cheap here anyway).
Budget Required Before you Can Pay Yourself
You have 400 Klicks left for which you need to budget. You've budgeted for food, clothes, TV (or the high-tech equivalent) and you also have some 'fun' money to play with. Unfortunately for you, that's your 400 Klicks accounted for for this month, as it is every month.
You know this since you've been keeping a budget for an Earth year or so and you know about how much you spend on each of these categories. Very rarely do you go over.
But sometimes you come under. Unfortunately, in the past you decided to spend what was left on the last day of the month - mainly because it would make you feel happy - but also just because you could.
Change Your Ways - Pay Yourself Last
This month however, you decide to give yourself a break from that end of month splurge. You've come in about 75 Kicks under budget this month, mainly because you didn't buy any clothes but also because you got some bargains at the Light-Speed grocery store and didn't go out as much as other months (the Inter-Galactic Olympics were on so you sat in and watched a lot of TV).
You decide that, instead of heading to the shops to spend it and make yourself feel good, you Pay Yourself Last and make yourself feel even better. You duly transfer your 75 Klicks into your retirement/savings fund. After all, a Klick saved is a Klick-and-a-half earned before tax. Also, a Klick saved now is worth quite a few Klicks in your retirement fund by the time you want to head to Europa and settle down 20 Earth Years from now.
The Present and Not the Future
Yes, I know, that story is set a little in the future but the funny thing is, that's where you need to be looking when you decide what you're going to do with that left-over money at the end of the month.
If you only take one sentence away from this post, let this be it. "... a Klick saved now is worth quite a few Klicks in your retirement fund ...". Substitute Klicks for your own currency and away you go to a more prosperous future, whatever planet you decide to retire on.
Please comment and let us know some of your other tactics for saving more before each month is out.