Paying yourself first an admission of failure!

[Nutria]

I'm finally fed up by the mindset promulgated by the this (https://www.savingadvice.com/forums/...tml#post443994) comment and many others like it over the years.

If you know where your money is going (I wanted to write "are living on a budget", but you don't need one to be fiscally prudent; it's just helpful), then you know you'll have a enough money for saving and deferred spending at EOM.

If you don't know where your money is going, then "feeding the pig" () is meaningless since you don't realize how much you put on the CC, the debt inexorably rises and that's costing you a lot anyway!

[thestrongprofessional]

Establishing a savings mindset

Hey Nutria,

I do agree with your point. If you don't know where your money is going and have uncontrolled spending, setting aside money when you get your paycheck will not be helpful. However, automatically setting aside money when you get your paycheck gets you in the SAVINGS mindset. The next step in the process would be to make sure that you know where the rest of your money is going. If you don't save money, it will be very hard to build long term wealth. A combination of the two is the most effective strategy.

Raphael

[disneysteve]

I kind of see your point but I don't agree that the concept is flawed overall.

Most people set out with the idea that they'll spend whatever they spend and save what's left - except there is never anything left.

If, instead, you take 10 or 15% off the top and then spend what remains, even if you spend every penny of what's left, you've still added to your savings.

We do not follow a budget. We do, however, stick to a savings plan. I really don't care how the dollars that remain get spent. Some months more goes to food and dining out. Some months more goes to travel. Some months more goes to medical bills. As long as the savings contributions get done, where the rest goes doesn't matter.

[Nutria]

We do not follow a budget. We do, however, stick to a savings plan. I really don't care how the dollars that remain get spent. Some months more goes to food and dining out. Some months more goes to travel. Some months more goes to medical bills. As long as the savings contributions get done, where the rest goes doesn't matter.

I'm impressed with your ability to do that without overspending. It's what got us into trouble in the first place.

Now one of the entries in our budget is "Slush Fund", which is for stuff (like clothes and a myriad of other one-off expenses) that doesn't fit in other 43 budget line items.

[Nutria]

I do agree with your point. If you don't know where your money is going and have uncontrolled spending, setting aside money when you get your paycheck will not be helpful. However, automatically setting aside money when you get your paycheck gets you in the SAVINGS mindset. The next step in the process would be to make sure that you know where the rest of your money is going. If you don't save money, it will be very hard to build long term wealth. A combination of the two is the most effective strategy.

I guess this is a debate about which mindset is more important to start out with: savings or prudent spending?

We always knew that we needed to save (which is why we've always had a 401(k)), but without knowing where our money went and without controlling our spending, CC debt just grew and grew and grew.

[Nutria]

Of course, employer-sponsored retirement savings plans like the 401(k) and 403(b) are prime examples of "feed the pig".

[disneysteve]

I guess this is a debate about which mindset is more important to start out with: savings or prudent spending?

We always knew that we needed to save (which is why we've always had a 401(k)), but without knowing where our money went and without controlling our spending, CC debt just grew and grew and grew.

Saving and prudent spending have to go hand in hand. Putting money in savings and then overspending and racking up debt makes no more sense than spending every penny and saving nothing. You've got to do both.

[Jluke]

We do not follow a budget. We do, however, stick to a savings plan. I really don't care how the dollars that remain get spent. Some months more goes to food and dining out. Some months more goes to travel. Some months more goes to medical bills. As long as the savings contributions get done, where the rest goes doesn't matter.

I didn't take that linked thread too seriously. The OP never contributed much to the topic and seemed to be laughing about the situation.

I'm in a similar situation with my budget as disneysteve. I reached the point where I stopped tracking every dollar spent and have been focused on my savings account values and most recently my "net worth". For 2016 I am on track to have a negative for my liquid savings accounts of 18k-20k. But based on how I spent it (debt payoff) I did really well.

[Nutria]

I didn't take that linked thread too seriously. The OP never contributed much to the topic and seemed to be laughing about the situation.

"Feed the pig"/"pay yourself first" is a modern personal finance mantra, though, and it must analyzed whether or not it's better than "know where your money is going"...

For 2016 I am on track to have a negative for my liquid savings accounts of 18k-20k. But based on how I spent it (debt payoff) I did really well.

If it was high (or at least "not low") rate debt, then .

If it was just to ease your mind about outstanding balances on low rate, then .

[Nutria]

Saving and prudent spending have to go hand in hand. Putting money in savings and then overspending and racking up debt makes no more sense than spending every penny and saving nothing. You've got to do both.

Correct that you must do both. Eventually.

We -- the regulars on this forum -- solved that problem a long time ago. It the people who are currently troubled financially that I'm thinking of.

Can they do both when priority #1 is -- mixing metaphors -- to stop the bleeding and start living within their means?

[scfr]

The more I read and hear about other people's experiences, the more I believe that "Know yourself. Figure out what will work for you and then do it." needs to be a mantra in the world of financial advice. What works for me may not work for you and vice versa.

You see . . . "paying myself first" did work for me. And I didn't even know it was called that when I was doing it. I don't even know if "paying yourself first" was an expression back when I started doing it (around 26 years ago). If that expression had been invented, it certainly wasn't common. All I knew was that I decided to start tucking away a little bit of money in to a CD each time I deposited my paycheck.

The reason it worked for me was that the thought of carrying a balance on a credit card never occurred to me, because that was how I was raised. Maybe that's too old-fashioned of a concept. But if I tucked away a bit of money at the start of each month, if the money ran out before the end of the month, then I did without. I ate only what was left in the pantry even if the pickings were really slim and maybe not very nutritious, I washed my underwear out in the bathroom sink if I didn't have quarters to operate the washing machine, etc. The thought of continuing to spend at my "normal" level and racking up cc debt never even crossed my mind.

Since I didn't like living that way, I soon followed up with learning where my money went and creating a budget --- feeling a bit like Scarlett O'Hara who proclaimed "I'll never go hungry again."

So if paying yourself first works for anyone reading this, then do that. But if learning where your money goes needs to be your first step, then do that instead.

If you have debt and paying off the smallest debt first works for you, then do that. But if paying off the debt with the highest interest rate works for you, then do that instead.

If paying off the mortgage early works for you, then do that. But if you decide that keeping the mortgage and increasing your investments works better for you, then do that instead.

If keeping your finances separate from your spouse works for you two as a couple, then do that. But if you and your spouse decide that you want all of your finances to be joint, then by all means do that instead.

Roth or Traditional IRA? IRA or 401(k) or both? Stocks or bonds or cash or real estate? Start a business or work for an employer? Each person's situation is unique. Do your research and do what works for you.

But do something to improve your situation!

It's like if you need to lose weight . . . does it really matter if you start with cutting back calories or if you prefer to start with increasing your exercise? No, it doesn't. What matters is that you take a positive step in the right direction. Do whichever one appeals to you the most. Do whatever you know YOU will be able to do and keep doing. There's no wrong choice. You'll win either way.

Know yourself. Figure out what will work for you and then do it.

Happy Holidays y'all.

[disneysteve]

Correct that you must do both. Eventually.

We -- the regulars on this forum -- solved that problem a long time ago. It the people who are currently troubled financially that I'm thinking of.

Can they do both when priority #1 is -- mixing metaphors -- to stop the bleeding and start living within their means?

I think you need to do both from day 1 - hence the "pay yourself first" advice. Do that and you'll never get into financial trouble.

If you are already in financial trouble, it isn't unreasonable to follow Dave Ramsey's advice. Save up $1,000 as a starter EF and then focus 100% on paying off your debt. Once you accomplish that, you grow the EF and start investing for the future.

So I think part of the answer depends on your starting point. If I'm talking to someone about to graduate college and get their first real job, I'm absolutely going to tell them to make savings a regular, automatic part of the plan from their very first paycheck and then work out a budget to live on what remains. If, however, I'm talking to someone who is older and had gotten themselves into a bunch of consumer debt and doesn't know where to turn, the initial focus needs to be on cleaning up the mess and getting the spending under control before the focus can turn to investing for the future. First, put out the fires.

[Nutria]

If, however, I'm talking to someone who is older and had gotten themselves into a bunch of consumer debt and doesn't know where to turn, the initial focus needs to be on cleaning up the mess and getting the spending under control before the focus can turn to investing for the future. First, put out the fires.

Since that where I was, maybe I assume that everyone who is in financial difficulty has the same need for self-knowledge.

[LivingAlmostLarge]

I guess I see it as if you are used to saving 15% and then know you can only spend the rest and while not accruing debt seems like it would be a good plan. If you auto-save and then say my paycheck $5k/month coming in and that's what we have to spend on mortgage, other annual buckets, vacations, etc, I think that paying yourself first can work.

Maybe if you then sent 5% to annual saving budget like car insurance, maintenance, life insurance, etc. Then spend the rest like on a debit card it will work.

I've found it very difficult to be on tight every penny accounted budget. I never stuck to it and found that my monthly expenses fluctuated and i was bad at tracking. But I found even years ago when we made very little, setting aside what I knew was coming and just saving $X worked. I somehow evaluated what I wanted and bought it if i could afford it based on what was in my checking account.

[Nutria]

I've found it very difficult to be on tight every penny accounted budget. I never stuck to it and found that my monthly expenses fluctuated and i was bad at tracking.

I set up a monthly "slush fund" for normal-but-infrequent stuff (clothes and one-off stuff). Spend it on whatever, but just don't exceed that total amount.

But I found even years ago when we made very little, setting aside what I knew was coming and just saving $X worked. I somehow evaluated what I wanted and bought it if i could afford it based on what was in my checking account.

With all those bills due at the end of every month, "bought it if i could afford it based on what was in my checking account" would have driven us to overdrafts every other month!!