Friday, February 22, 2008

Pay yourself first....and last

Of course most of us have heard the advice to pay yourself first by either investing in a retirement plan like a 401K or depositing into a savings account. Obviously this is great advice. Putting aside money for retirement is important to everyone because God willing most of us will have the opportunity to retire and it would be nice to have enough money set aside to enjoy that time of our lives.

Setting money aside in a rainy day fund can help you avoid overusing credit cards or other types of debt. Recently I received an email from Discount Tire offering a free tire rotation which seemed like a good idea as to not over wear the tires on the minivan. While waiting for the rotation to be completed I was called to the counter and the young man working on my van asked me to follow him into the bay where the van was hoisted up. He showed me where two of the tires had worn enough that portions of the steel belts could be seen poking through the rubber. Not good. And not cheap. Three of the four tires had more wear than what was safe. And with the van safety is a big concern because it is the only vehicle we allow my daughter to drive. So I reluctantly purchased a new set of tires. My reluctance earned me a lower price by about $70.00 but even so my bill was just over $400.00. Fortunately my rainy day fund was ready for this down pour and I won't be paying a bank interest for this purchase.

A special savings account for larger purchases can save you interest payments. But in America most people have a propensity to use credit, they want that instantaneous gratification of purchasing that new gadget, house or car. I have wanted a new TV for the rec room in the basement. You know the one: 40 inches, LCD, HDTV, incredibly crisp resolution, connected to the newest components. I have been wanting one since the new couch for the rec room arrived. I have the money in my rainy day fund so I wouldn't even have to pay interest. But I won't raid that fund. I have set a goal instead to save enough to purchase the TV. It will take a little while more but that's OK with me.

Now on to paying myself last. On payday I receive my direct deposit into my checking account. I then make a transfer from my checking account to my money market account leaving a set amount in the checking. What this does is it sweeps both the portion of my pay that I'm saving and the remains of the prior two weeks set amount. So if I have $50.00 left over from the prior payday that $50.00 goes with the amount that I normally save. There are times that I have not balanced my checkbook and need to transfer money back into the checking but overall it accelerates my savings process.

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