Transform Your Finances: 3 Words for a New Money Mindset

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Trust me, they're worth following.

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Key points

• Many people struggle to save money.
• One simple rule could make it easier to build savings and meet financial goals.

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My first steady job, if we even want to call it that, was babysitting for a child in my neighborhood on a consistent schedule. The child's parents would give me a wad of cash at the end of each week, and typically, I'd be left to decide how much of it to spend or save.

Given that I was about 13 at the time, you can imagine how that process went. I'd tell myself to save most of my earnings, but then, sigh -- the latest issue of Teen Beat magazine would come out, or the ice cream man would drive down the block, or the latest fashion item would go on sale at the mall. And before I knew it, my 13-year-old self would go off and spend her money, leaving little left over for the savings account she knew she was supposed to be adding to.

I took a similar approach to money in the course of holding down various jobs throughout high school. But then one day, a friend of my parents was visiting and the topic of me working came up. When he asked how I managed my paychecks, I shared my "spend some, save some, hope for the best" philosophy. He was quick to offer up three words of advice that have since shaped my financial outlook.

Pay yourself first

That's it. Those three words represent a concept that's simple to understand but much tougher to uphold.

The idea behind them is simple. Whenever money comes your way, you pay yourself first by putting some of that cash into savings before spending a dime. That logic can apply to anything from your regular paycheck to your tax refund to whatever other bonus cash comes your way.

Often, people have the best of intentions when it comes to saving money. But then life's expenses get in the way. We can tell ourselves we'll sock away $100 in savings in a given month, but when the weeks get busy, it's easy to rack up a huge tab ordering takeout rather than cooking. Suddenly, that $100 savings goal can go out the window.

That's why paying yourself first is a better bet. And you can do so in a number of ways.

First, you can set up an automatic transfer with your bank. This will send money from each paycheck you collect directly from your checking account to your savings account. That way, you won't be tempted to spend it.

Next, you can arrange to have money sent directly into a retirement plan. If your company offers a 401(k) and you decide you want to contribute $200 a month to it, that $200 will be deducted from your paychecks so you won't even get the option to use it. If you don't have a 401(k), you can find an IRA with an automatic savings feature and set up something similar.

By paying myself first through the years, I've managed to kick temptation to the curb and meet the various savings goals I've established, like having a fully loaded emergency fund. Just as importantly, by paying myself first, I'm able to spend money without as much guilt. If I get lazy and increase my food budget by $100 one month by falling back on takeout, I don't have to beat myself up because I know my monthly savings goal will have already been met from the start.

A great option for struggling savers

If you've had a difficult time saving money in the past, here's a good bet. Figure out what your essential living expenses look like each month, and then compare that total to what your paycheck gives you. If you need $3,000 a month to cover your rent, car payment, utilities, groceries, healthcare costs, and other non-negotiable bills, but you get $3,500 a month in your paycheck, you can set up an automatic transfer that sends $300 a month into your savings. Then, you'll have $200 to spend on leisure and luxuries.

By paying yourself first, you can set yourself to be more financially secure and get closer to meeting hard-to-reach goals, like buying a home or funding your kids' higher education costs. Plus, you can enjoy the satisfaction that comes with knowing you're putting your money where it needs to go, and you aren't blowing it on the adult equivalent of Teen Beat magazine.

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