Pay Yourself First

Many years ago, hubby and I found ourselves faced with the annual car insurance bill. There was, of course, the option to pay the entire amount all at once. That didn’t seem like a great option because the checking account didn’t have that much money in it at the time, if ever.

The other option was to break it down into smaller payments but they, of course, tacked on a fee for the privilege of stretching the payments out. We decided there was another option. We could pull the money out of savings, just this once, and pay the entire bill. This was the option we ended up choosing, but with one condition. Hubby and I decided that we didn’t want to rely on savings to pay for car insurance every time it came up or miss out on the savings ($200-300) we could take advantage of by paying the full bill, so we came up with a plan. We calculated the full bill with the savings and divided it by eleven months. We went into the bank and asked if we could set up a sub account and on a particular day each month have the figure we had calculated as our monthly payment transferred from our checking account into our new car insurance savings account. The bank told us we could and that the special savings would even earn a higher percentage of interest if we were willing to have it only allow one withdraw per month without penalty. Since we were planning to leave it there for the next year until our car insurance was due again, we agreed and set it up. Our bank charges us nothing to do all of this, so it was a great plan. You may be wondering why we divided by eleven instead of twelve months. Well, we figured it might go up before the next bill and we wanted to make sure the money was already in place to pay the full bill when it arrive in the mail. The twelfth payment would insure there was a little extra to leave behind also so we could start the next yearly cycle on a positive note.

This was awesome we didn’t miss the money in the checking account because it was transferred out and we never missed a payment or forgot to transfer the money because it was already automatic. We did this a couple of years and would periodically increase the amount we pout into our car insurance account each month to help offset any car repairs. This made car repairs much less of a drain on our budget too because we had some money save to help pay for them already.

Eventually, this system was expanded. We discussed the fact that all of the appliances in our house were getting older and would likely need to be replaced at about the same time, so we tallied up all the costs to replace the stove, refrigerator, washer, dryer, dishwasher, etc. Then we figured we could have to replace all of them over the next seven to ten years, so we divided the huge total by seventy-two months and decided to begin to pay ourselves first into the newly created Household account. We also figured what we normally spend on gift giving for birthdays and Christmas each year and started a Gifts account. We set another one up in a second checking account we had but weren’t really using anymore and called it our Charity Checking account where we would write checks for fund-raisers and church offerings and such.

Once upon a time we used our tax refund to pay for family vacations. That worked fairly well and quite honestly when the kids were young was the only chance we had of affording to go on a vacation of any kind. Hubby realized that we couldn’t ever go on vacation until we had gotten our tax refund for the year, so he suggested that we decrease the amount of money we had taken out of our checks so we would get much smaller tax refunds each year. Then, we would begin paying the money weren’t having withheld into our new vacation savings account. Each Friday when hubby got paid, we would have the bank transfer fifty dollars into our vacation savings account where the money could be building up and available for the occasional weekend getaway.
This system really works, it all happens automatically so you really don’t miss it but there is money slowly building up in all of these special accounts. The holidays can come and we don’t panic about how we will pay for it, we just stay within the budget we have saved. When we need to replace or repair a household appliance the money is already there, so the stress level is much lower.
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I highly recommend trying this for yourself. Start small. Check with your bank to see if they are willing to help you with this. It is basically the envelope system in action without all of the cash stashed in envelopes and lying around the house.