Primerica believes the ultimate key to financial success is knowledge– about how money works, how to make responsible, well-informed decisions and how to get the best value for the dollars you spend. That’s what “How Money Works” is all about. As part of Primerica’s continuing commitment to consumer education, over the next several months we will discuss common sense financial concepts that can help people overcome the obstacles they face and achieve their goals. We will show you how greater financial security is within reach of every working American.
The critical first step is learning to make wise financial decisions. Primerica encourages consumers to become independent thinkers and always make their own choices, whether they’re purchasing financial products or any other goods or services.
This month we will focus on the first principle: Pay yourself first.
The problem most people face is at the end of the month most people do not have anything left to save. The solution is at the first of the month, before you pay anyone else; write a check to yourself for 10 percent of your income. Paying yourself first may be the single most important concept we teach our clients. If you work for an employer that has a retirement plan it is easy to set up. If not open an IRA and contribute monthly. Consult your local financial professional for which option is the best for you.
It’s not what you earn, it’s what you keep. Put yourself at the head of the line. Treat your savings like any other recurring bill that you must pay each month. Dedicate the appropriate amount from your paycheck and set it aside. While most people think nothing of sending enormous amounts of money to credit card companies on a regular and systematic basis, they balk at the idea of paying themselves first! Change that mindset. Cut up your credit cards and put those payments into your own savings. Make a commitment to pay yourself first.
Here is a great exercise to put a little perspective on your situation:
Calculate how much you’ve earned – and how much you’ve saved.
Average annual income (estimate): A) _________________
Times number of years worked: B) _________________
Equals total amount earned: C) _________________
Amount of personal savings: D) _________________
Divide D by C: E) ________________%
This equals your percentage of income saved.
Are you a little depressed now? Most people are. According to the Huffington Post in March of this year the personal savings rate in American is just 3.7 percent CNN Money indicated that you would need to save between 10 percent and 15 percent. It really does not matter where you are now. Just start doing something. The retirement bill is going to show up before you know it.
Next month we will talk about the three accounts you need to have a complete savings program and how time and consistency can be your friend!