We’ve all heard the adage that when it comes to building long-term wealth, we should always pay ourselves first. But that is often easier said than done. According to our recent Knowledge First Financial Budgeting Survey, only 29% of respondents say they pay themselves first every month. Another 23% tell us they pay themselves first only occasionally, while fully 48% of our respondents say they never do.
Paying yourself first means setting aside a certain amount of money each month before paying your bills. How much that should be, depends on many variables, including how much of your income goes toward things like rent/mortgage, car payments and other non-discretionary bills. Simple cost-of-living expenses can add up so quickly that it can often feel impossible to contemplate setting anything aside before meeting those obligations. Many of us aim to save whatever money is left at the end of the month after paying bills, but that means always paying ourselves last. And that can add up to never being able to save for the proverbial rainy day.
According to financial advisors, the best way to get into the habit of paying ourselves first is to automate payments to things like registered retirement or education savings plans. That means money is automatically withdrawn from our pay before it ends up in our bank accounts, so it becomes a non-discretionary expense like our other financial obligations. This tactic eliminates the temptation to splurge or spend more than we plan to each month and keeps us on course for our long-term financial goals.
Download our simple monthly budget to keep on track with your savings goals.
The good news is, it turns out most of the families that responded to our survey are a bit ahead of the curve when it comes to RESP payments. Almost 89% of respondents report that they use a pre-authorized payment option to contribute to their children’s RESPs. Meanwhile, 88% say their RESP payments are included in their monthly budgeting. That means our survey takers are on the right track toward enjoying compound growth and helping their children achieve their higher education ambitions.
Most of the survey respondents, however, may not be maximizing their ability to contribute to their children’s RESPs. For instance, less than 6% of our survey takers say that they ask family members or friends to contribute to RESP payments in lieu of other gifts on birthdays and holidays. About 17% of those surveyed occasionally ask for contributions, so that means up to 77% of families are putting the onus on themselves to make their RESP payments.
Our respondents also use various tactics to keep their monthly expenses in check. Almost 71% order in or eat out less frequently, while 70% take their lunch to work and the same percentage brews their own coffee at home. Meanwhile, 84% wait for sales before making major purchases. More than half of our respondents use coupons to save money, while 50% choose to use streaming services rather than going out to the movies.
Creating and sticking to a budget that includes paying yourself first and trimming your discretionary spending are all tactics that will help savings goals. For our survey respondents pre-authorized RESP payments and reduced spending on restaurants and coffee shops are the most popular methods to stay within their budgets while still planning for the future.