Pay Yourself First: A Tale of Two Accounts (part 1)
It is now a widely used phrase in self help financial guru speak, pay yourself first or bill yourself. But most people fail at it, from lack of understanding. The failure does not come from not understanding the key concept, pay yourself first, but in the execution of life.
The vast majority of people are so underwater, driven by housing propaganda and credit propaganda, that saving has all but disappeared in America. When people that never knew about saving, start to save, they fail miserably. What is the problem? They set up the entire business model of saving abysmally.
To save effectively, two laws of financial nature have to be acknowledged: if you’re a spender, any and all money will be spent, no matter how large the money pool you are working with; and any possibility of going wrong, will happen. That means two things, those who make $200,000 a year, spend just as much as those that make $20,000 a year, percentage-wise. And, emergencies can and will happen, to eat up money you’ve squirreled away.
To avoid these two laws, you have to setup your two princes: two separate bank accounts – the Emergency Account and the Savings Account. They each have their place, and you frankly cannot have one without the other, if you are serious about saving.
The first thing you absolutely must do is excuse yourself from any of the major nationwide banks. Their business model works against you, not for you. The convenience of them having ATMs all over is completely offset by them slowly bleeding you dry of all your money. If your goal is to save money for a home or retirement, get away from any and all major banks, this includes online banks as well.