Friday, March 23, 2012

omg! pyf. wth?

Yesterday, I was chatting up a co-worker for details to add to Thursday's post and she mentioned a concept I hadn't thought of since my personal finance course at Simmons College - Pay Yourself First (or as I like to say, PYF).

The concept is simple - set aside money in some type of account before you pay bills, buy groceries, or hit the bar. Like most people, I think about saving only when there's barely any money left in my bank account. In October 2011, Americans were saving about 3.6% of their disposable income which is only 0.5% higher than our pre-recession savings of 3.1% (from here). When I think about how much I take home per year, while it's not much, 3.6% in savings seems downright pitiful. Clearly, paying myself last isn't working out, especially after crunching the numbers yesterday.

What does work (for me) is an automatic payroll deduction. If I can't see it, I can't spend it. A few months ago, I enrolled in a deferred compensation plan and opened an IRA, both offered by my employer, in addition to the money taken out for my pension (I'm of the mindset the pension probably won't be there by the time I retire). Between the two accounts I was contributing 12% of my pre-tax income towards retirement. So I actually was paying myself first for a bit. Once I started this debt payoff challenge, I decreased my contributions to 3% in order to sock the extra $120 or so towards credit cards. Unfortunately, my savings account has grown only infinitesimally in the past two months and I decided it's time for more drastic measures.

Our employer won't automatically deduct money into just any account so today, I signed up with our county's credit union online. All they asked for was $5 to open a basic savings account. On Monday, I'll pop in with my signed form and my driver's license and they'll be able to route $50 from every paycheck into this new account. Once I have $100 in the account, I'll receive compounded interest quarterly. The rate isn't much (0.1%), but at least I'll have money set aside every month before I can figure out a way to spend it.
one day this will be me.
(with money. not with a colored face but a grey neck/hands)
Who else PYF's? Can we get this acroynm happening for real? LoLz.

Day Thirty Two Spent:
$0.85 vending machine Oreo's
Day Thirty Two Saved:
$5.00 in new credit union account

1 comment:

  1. I do this. I'm required by state law to put 5% of my gross income into a pension plan for my day job. I put another 5% into an IRA, but that is done manually. For short-term savings, I do an automatic transfer into a money market savings account, which is a livesaver. I schedule the transfer for the same day I get my paycheck, so I never see the money and I never miss it!