Some people really struggle with money. It’s not surprising, considering we live in a consumption based society where every advertisement is telling you need this new thing or more of what you already have. Spoiler: It will never be enough until you want what you already have.
I’ve found money pretty easy to deal with since I moved out of home at the age of 17. My parents never earned large salaries and so I grew up with a lot of struggles around money, but I simply never really had those problems, because I had a completely different attitude to money.
From the time I moved out I decided I wanted a financial safety net to cushion myself from anything that might happen. As I didn’t have a lot of savings when I moved out of home, I took my safety net in the form of an interest free $1000 overdraft I was entitled to as a student. I wouldn’t use it unless something came up, and then I made a rule to always pay this back as soon as humanely possible.
As I got a little older, saved a little harder, I built up my own emergency funds. Now I have quite a lot of emergency funds, more than enough money to cover my essential expenses for around one year.
Why a Safety Net Is a Game Changer
I’ve written about how being poor is expensive, but even if you’re not ‘poor’ or ‘broke’ being tight with your money is expensive. Not having flexibility means when something goes right or a great opportunity comes along, you don’t have the financial means to handle it.
It keeps you stuck in the same cycle of missing opportunities and paying too much for the same things.
How I Pay Myself Last
I’ve changed handling my money to every two weeks, so when I withdraw all my money from Paypal into my account the first thing I do is pay off any credit card balances I have every second Monday. I prefer to use my credit cards as I do incur points. I do not recommend this if you’re the type of person who thinks that their credit card allowance is extra money that they have. It’s not, it’s an amount of money you can borrow and then pay back at a highly inflated rate if you don’t do it quickly.
My credit card expenses include my business expenses, some dinners and lunches during the week and any big purchases that I may have made. Before I changed my withdrawal schedule to every two weeks, I was doing this weekly. Every second Monday my credit card balance goes back to $0 and this is the first thing I do. It’s the most important thing to do because it stops you from paying unnecessary interest.
Then I consider my upcoming expenses and set aside the amount I’ll need for rent, power, food into a separate account. After that, I’ll look at the remaining amount and choose how much to dedicate towards saving. I always try to be overly ambitious with how much I’ll save. It’s much harder mentally to take money out of the saving pile then it is to spend money you’ve already left in your spending again.
Then I’ll leave a small amount for ‘fun money’ so that I can spend it on coffees, going out with friends, random treats for my dog and so on.
This system works really well for me – as someone who doesn’t have any credit card debt. The only debt I have at present is a student loan and I am paying that off above the minimum requirements so feel happy with my progress there.
This is the order I do things and I think it works the best for me:
First I pay my credit card debt – which has only been incurred over the previous two week period
Secondly I pay for my essential living expenses – rent, food, electricity, internet
Third I put as much money as I humanely can into savings to get it out of my account
Fourth I leave a little play money for me to enjoy luxurious like getting my hair done, going out to lunch and coffee and so forth.
I can’t have fixed weekly amounts for things as I earn an inconsistent income week-to-week, so this system works best for me as it’s quite flexible.
How do you deal with your income? Do you pay yourself first or last?