How To Pay Yourself First

Most family child care providers know they should be saving more money for their retirement.

But, at the end of the month there is usually little, if anything left for savings. You’ve spent your money on other things and left out any savings for retirement.

Here’s the first step you should take to gain more control over your money, so that you will have some money to save. Track the money you spend for a month. Put the expenses into two categories: fixed expenses and flexible expenses.

Fixed expenses are those items that you have little or no control over how much you have to spend each month. They can include: mortgage/rent payment, utilities, taxes, food, credit card payments, car loan payment, etc.

Flexible expenses are those that you have some control over. They can include: clothing, entertainment, charitable contributions, child care business expenses, and so on.

At the end of the month, review where you spent your money and ask yourself these questions:

  • Is my spending level sustainable? If your monthly expenses exceed your monthly income, this is a clear sign that your finances need immediate attention. You won’t be able to continue down this path without going into debt.
  • What fixed expenses might you reduce? Credit card interest and car loan interest are the first place to look. Your goal should be to pay off all credit card debt at the end of each month and start a car replacement fund so you can eventually pay cash for a car.
  • Are my values in line with my spending? If your spending behavior doesn’t match your true priorities in life, you may want to become more purposeful about how you are using your resources. This can be a powerful motivation for changing your spending habits.

The best way to save money for your retirement is to make it a high priority. This means setting a modest savings goal each month ($25, $100, etc.) and deposit this amount in a saving account or IRA at the beginning of each month. This is called paying yourself first.

If you start running out of money before the end of the month, cut your flexible expenses. It should be fairly easy to cut some something (eating out, clothing, entertainment, etc.). Providers who do this exercise don’t miss the money they didn’t spend. Now you are on the road to saving for your retirement.

Small amounts add up. If you save $100 a month and it earns 8% a year, you will have over $19,000 at the end of ten years!

Tom Copeland –

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For more information, see my book Family Child Care Money Management & Retirement Guide.

Categories: Money Management, Money Management & Retirement

2 replies

  1. Dear Tom, I am able too save $200 a month in my rothIRA. It is only about 3.5%. Quite often when I read about saving money the 8% interest rate is used. How would I go about to find this rate?

    • Congratulations on saving $200 a month. If your IRA is invested in fixed income assets (bonds or CDs) then 3.5% is a reasonable return in today’s market. An 8% return is based on the long term interest return when investing in stocks. If your IRA is invested in stocks your return is small compared to last year and this year. I recommend investing in Index Funds because of their low expenses. The best one is an Index Fund that invests in the entire stock market, called the Wilshire 5000.

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