Piggy Bank2

Pay Yourself Second

Of all the things you can do with money, few are more boring than putting it into a savings account, right?

Spending it?  Now, that’s fun.  Investing can be enjoyable, too.  But parking some money in an “interest-bearing” savings account where $1,000 may turn into $1,001 in a year’s time?  Who needs it?

You do, and so do I.

Making Savings More Exciting

Imagine that every dollar you put on deposit will improve your health.  Research shows that people with an adequate emergency fund experience less stress than those that don’t.

If you’re married, imagine that every dollar you put into savings is an investment in your relationship.  Research shows that couples that live within their means, putting a portion of their earnings into savings, are happier than those that don’t.

No matter what your situation, let’s face it: in life, stuff happens.  Cars break down, costing us more than we have in our maintenance and repair fund (you do have a maintenance and repair fund, don’t you?).  Other unplanned expenses pop up.

For all those reasons and more, it’s important to pay yourself second.

“Ah, Matt, isn’t that supposed to be, ‘Pay yourself first?’” No. It’s important to pay your purpose first, and then pay yourself.

How Much Should You Keep in Savings?

If you have any debt other than a reasonable mortgage, build a savings account with enough money to pay one month’s worth of essential living expenses.  Then, go after your debt.  Once you’re out of debt, build an emergency fund valued at three-to-six months’ worth of essential living expenses.

How much is that for you?  Take a look at the categories on my Cash Flow Plan worksheet and highlight the ones that are truly essential.

If you lost your job tomorrow, going on a vacation probably wouldn’t be a high priority.  But you’d still need to pay your mortgage or rent and utilities, buy groceries and other essentials.

Where Should You Keep Your Savings?

None of the choices for savings accounts are very attractive these days.  Interest rates are extremely low.

However, online banks usually pay better rates than brick & mortar banks.  As do credit unions.

But earning interest isn’t a primary goal of an emergency fund.  Mostly, you just want your money to be safe and accessible if you need it.

Two final words of recommendation about savings. First, keep your emergency fund in a separate account.  When people keep money intended for emergencies in their checking account, it usually leaks.  It’s just too tempting to use it for other things.

Second, I recommend that you maintain three savings accounts – one for an emergency fund, one for the replacement of big-ticket items like your car or your home’s furnace, and one for bills or expenses that occur at some point each year but less often than monthly.

Where do you keep your emergency fund money?  Let me know in the comments section.

Who else would benefit from this post?  Why not forward a link to my site? And if you haven’t done so already, you can subscribe to this blog by clicking here.  Abut once a week, you’ll receive ideas and encouragement for using money well.

, ,

6 Responses to Pay Yourself Second

  1. Usiere February 27, 2012 at 5:18 PM #

    I can’t but agree. Quite a refreshing perspective. Saving sure is boring, but is good for your health, marriage, self esteem etc. A borrower is truly a slave to the lender. We have to be good stewards of the money that comes to us

  2. Lindsey February 22, 2012 at 3:32 PM #

    I know the 10-10 rule, first 10% give, second 10% save. Now for someone like myself, we are a young family and live very conservatively to make it yet we still tithe, have a retirement plan and are building up 1 month worth of savings/emergency fund.
    My question is: The 10% saving; does that include investments/retirement fund?

    • Matt Bell February 22, 2012 at 3:44 PM #

      Lindsey, the ideal is to put 10 percent of income into a savings account for use as an emergency fund. Then, once that fund is fully stocked (ideally with 6 months’ worth of living expenses), take the 10% you were putting into savings and put it into an investment/retirement account instead.

  3. Connie Grotenhuis February 14, 2012 at 6:07 PM #

    We opened an online savings account last year, and we have been well satisfied with it. It definitely beats the rates that brick and mortar banks pay and it is easy to obtain funds. Also we do use Christian Community Credit Union with their homebuilder certificates and are well satisfied with their rates which are far more competitive than brick and mortar banks.

  4. Matt Bell February 14, 2012 at 2:52 PM #

    Bob – It’s great to hear from you. Your story is a strong testimony to the fruit that comes from getting the money thing right.

    Great to hear that you were able to visit Dick and Sybil as well. We hope to do the same sometime in the near future.

  5. Bob Furia February 14, 2012 at 11:14 AM #


    The simple tool of record keeping that we established way back when budegeting and living below our means became a lifestyle, continues today – well into my fourth year of retirement.

    We still adhere to the “savings habit” because one thing we’ve learned over the years is that “stuff” indeed happens.

    We have blended our emergency fund into what we now refer to as the “DINC” category of our budget plan book (Disposable INCome). Each year, after breaking down the monthly retirement-pension check to cover all the normal budget categories we’ve established over the years, we set an amount that can be set aside to do the things we’d like to do in retirement. It’s amazing how the funds in that category have grown, as we find ourselves to be more than content with some modest trips & purchases (must be the result of learning to live simply all these years :-))

    A second source of emergency/ discretionary income has been generated by a long-time woodworking hobby that in retirement has become a fairly steady source of funds. I’ve always enjoyed this work considering it more an avocation than an industry. But now, income being generated by what I love to do anyway has been re-invested in supplies & tooling that with careful planning, have returned the investment many times over. I even built a studio to work in with funds generated from this “hobby.”


    P.S.: Stopped by to see Dick & Sybil Towner on a recent trip near their new place in Indiana. He can tell you some great stories about how establishing “The Springs” came about.

Share This