Pay Yourself First with The 3 Piggy Banks

Pay Yourself First with The 3 Piggy Banks

By setting aside this percentage of your earnings each month, you’ll create the nest egg of your dreams

Do you remember your childhood piggy bank? Whether it held your weekly allowance, birthday money from grandma, or your lemonade stand earnings, it was so satisfying to drop money into its back and then shake it to hear the coins rattle. As you got older, you probably did away with your trusty piggy bank, and instead opened a savings and checking account — definitely less cute, but also a bit more secure and functional.

Well, I’m advocating you bring that piggy bank back ASAP — or, at least the general concept of it. It’s one of the best tricks Robert and I learned many years ago, for making sure we put money aside for our future. How does it work exactly?

Your New Household Rule

Robert and I kept finding that once we paid all our bills, and then spent money each day on food, gas and other living expenses, that we’d have nothing left at the end of the month. It slowly dawned on us that if we didn’t start putting something aside for our investments — for our future — then we’d end up with nothing. It was so depressing to endure this cycle each month, and we felt trapped in our lifestyle. So, we made a plan, and the first part of the plan was to commit to this:

For every dollar that came into our household, no matter where it came from, we would take 30% off the top.

In other words, we decided to pay ourselves first, before paying anyone else. If $100 came in, then we put aside $30. If $1.00 came in, then it was 30 cents.

Where Does That Money Go?

Ok, so now we’d committed to taking 30% off the top of any money that came in — but it’s what we decided to do with that money that really made this plan work in our favor. We chose to divide the 30% into three “accounts,” which at the time were actual piggy banks. Yes, it was a simpler time back then. The three piggy banks were labeled:

  1. Savings Account (10%)
    This account is a cushion for unforeseen emergencies or special opportunities that improve your life.

  2. Investing Account (10%)
    These are funds allocated for a great investment opportunity, so we’d be ready to make a move once one came to our attention.

  3. Charity or Tithing Account (10%)
    As the saying goes, “Give and ye shall receive.” Another saying I’ve heard is that, “God doesn’t need to receive but humans do need to give.” Charity is a powerful tool with many benefits to all involved. One line of the Rich Woman’s Creed is “I am grateful.” It’s very gratifying to share what you have and be of service to others.

The Power of Consistency

After we took the 30% off the top, the remaining monies went to pay our bills. Now, let’s get one thing clear: Paying ourselves first did not mean that we spent that 30% on clothes, nice restaurants, and vacations. Paying ourselves first meant that we were working toward achieving financial independence.

The key to making this plan work was that we committed to do this with every dollar that came into our household. It would have been easy to slip back to old habits and dip into that 30% from time to time, or to say, “We really need a new couch, let’s skip the piggy banks this month.”

The true magic of this entire plan comes from the discipline of doing this with every dollar and sticking to the plan every month. By sticking to our plan, we created healthy financial habits. And by maintaining consistency, we saw that money grow, which kept us motivated to continue on our new path toward financial freedom.

If you don’t want to use old-school piggy banks (though the tangible nature of them can be quite refreshing), then be sure to set up clearly labeled savings accounts with your bank. If your earnings are consistent (e.g., you have a set salary and your biweekly check is always the same), then you can even set up automatic transfers into these three accounts so you don’t have to rely on your memory or possibly tempt yourself with excuses each month. And if that’s not the case, then just create a monthly (or biweekly) discipline of calculating 30% of your earnings and immediately moving it into those three accounts. And if grandma still sends you a $5 on your birthdays, don’t forget to put 50 cents in each of those three accounts!

Are you feeling motivated to start planning for your financial future now? Then create a plan today to set aside money exclusively for investing, stick to the plan, and watch your nest egg grow. Once you’re ready to begin investing, use this guide to finding your investment focus. And, in the meantime, keep improving your financial education so you can put that money to good use.

Original publish date: August 01, 2009

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