How to Pay Yourself First through Retail Banking

Paying yourself first is amongst the basic tenement of financial planning. Financial Advisors say thinking of personal savings as the first bill you must pay each month can really help you build tremendous wealth over time.

Then again, you may think it is easier said than done. Once in a while I say that to myself too. But I see a lot of people who have successfully done it. So, I choose to try again.

Chances are you have this mind-set because you have not yet developed the habit of doing so; “paying yourself first”.  As for any habit to develop, it will take time. It will take a certain discipline. It will be a conscious effort. It will be mindful. It requires a regular pattern of doing.  And, it will have to begin now.

I will assume that you are getting a regular amount of money on a regular interval of time. This is likely, a salary.  I will also assume that you have a bank account, at least one for that expected money we are talking about, your payroll account.

How do we get started with paying ourselves first? 
Here are few ideas on putting that "bill" for yourself on your retail bank. 

1.  Go to the bank and open a second account or an account that is separate from all your other accounts.

This account should be only for a specified goal, either for saving or investing. If possible, choose an account with a higher interest rate. These types of accounts likely limit how often you can withdraw money, which is a good thing because you're not going to be pulling money out of it, anyway (That's our intention).

Ask the person assisting you how to link your primary account to your savings/investment account so that you can do transfers from your primary account into your savings/investment account via the internet or telephone banking from anywhere.

2.  Determine how much you want to put into the account and at what interval.

The ideal formula is: Give away 10%, Save up 20%, Live with 70%. However, most people struggle to achieve this, especially when they are starting to learn about money. Start with 5% of your salary. For example: If your earn PhP 15,000 per month, save up PhP 750. On an average, after a year and you find you can do it monthly, increase to 6%, then 7 and so on.

5% is still too big? Start with 1%. Start with any amount. Just start.

3.  Put that money into the account as soon as it is available.

As soon as your salary arrives in your bank account, transfer money from your primary account into your savings or investment account.  If you have direct deposit, have a portion of each paycheck automatically deposited into the separate account. You can also set up an automatic monthly or weekly transfer from your main, active account to your separate account, if you can keep track of your balance enough to avoid overdraft fees. The point is to do this before you spend money on anything else, including bills and rent.

4.  Leave the money alone.

Don't touch it. Don't pull money out of it. You should have a separate emergency fund for just that--emergencies. Typically that fund should be enough to cover you for three to six months. Do not confuse an emergency fund with a saving or investing fund. If you find that you don't have enough money to pay your bills, look for other ways to make ways to make money or cut expenses.

If you have decided to put this account under the retail bank, Bear in mind that every bank and every account may incur monthly fees. It is thus important that you speak to someone at the bank and ask for the most cost effective solution. Be sure that you clearly understand the costs and fees of this account.