Pay It Forward - American Credit Foundation

Pay It Forward

Remember when you were a kid and you had a piggy bank? You would drop pennies and nickels into it just to hear that pleasing “plink” sound. You didn’t spend that money on candy or tickets to the movies, and eventually, all those pennies and nickels added up. Now you are grown up, and your piggy bank has turned into a real bank. But you can still treat your grown-up bank like your childhood piggy bank by setting aside some money for yourself each month.

You work hard to earn enough money to cover all of your expenses each month. But it seems the same every time–by the end of each month, you have spent it all, and you have nothing to put away for your future. Well, this next suggestion may seem radical, but it is a serious step towards giving yourself what you deserve. Pay yourself first.

This time, you won’t be giving up candy or movie tickets. You may be sacrificing a few grown-up treats that you have come to depend on, such as a particular brand-name cereal or a daily visit to your favorite (expensive) coffee shop. But by giving up those things, and making some adjustments, you can save money that will be waiting for you in your “piggy bank” on that rainy day in the future.

The way to begin cutting back and saving money is to pay yourself first, before you pay other bills. That’s right. Each month, when you get your paycheck, take a predetermined portion of it, say, five percent to start with, and put it away. Put it in a brokerage fund, mutual fund, retirement account, anything. Then, whatever money is left over is the money your actually have to work with when paying your bills. If you wind up short, do not even consider that money that you had set aside. Do what you can to make it up- cancel some dinner reservations, go without cable TV, or start using bargain shampoo instead of the salon brand. You can find the extra money somewhere in the present in order for you to have some money waiting for you in the future. In fact most people that take this step are amazed that they really didn’t even notice the 5 percent reduction.

In the classic book A Tree Grows in Brooklyn, a desperately poor family living in a tenement slum dutifully puts half of everything they earn into a tin can nailed to the floor of a closet. No matter how hungry or desperate they are, if one day they make only 12 pennies, 6 of those pennies go into that bank, so that some day, if something truly awful happens, they will have something. Or, so that one day, one glorious day, that tin can might have enough money in it for them to get out of that slum and start a new life. The Nolans always pay themselves first. If they can, you can.

So, what are a few ideas about how you can set aside this money so that it will be there for you later?

    • 1. When you

sign up for a 401(k) plan

    • , your employer will match you up to a certain amount. You can get an instant return on your investment! That is like putting a dime in your piggy bank and having your mom add a nickel.
    • 2. Make it easy by

setting up a mutual fund

    • account. You can arrange to have even just a few dollars automatically placed in your mutual fund each month, and you don’t even have to think about it.
    • 3. Similarly, you can

set up a special savings account

    that will literally be your piggy bank. To make things even easier, you can have your employer automatically deposit a certain amount of your paycheck into that account each month, be it $20 or $100. You can even eventually raise the amount you deposit. That account will eventually become a modest to hefty nest egg and you barely have to lift a finger.

You may be thinking: But, that is impossible! How can I set aside money that I know I could use right now? College tuition, car repairs, credit card payments . . . my money should be going everywhere BUT some retirement fund where it will just sit there and do me no good!

Ah, but it WILL do you good, because it will grant you financial security and independence in the future, a time when you may need it most of all.

Right now, you are able to work, earn an income, and save a few dollars here and there. But come retirement, you will be happy you set aside that money, and you will barely remember that the bagged brand of cereal tasted any different than the fancy name-brand with the cartoon character on it.

This last suggestion isn’t as clever as an IRA or 401(k), but whenever you are really in need of some money that is just for you, you can revert to a good ole jar full of cash. Set a jar on a shelf in your closet, and every now and then, put a few dollars and cents into it. If, after a tough month, you really really need some pampering, empty out that jar and get a pedicure or a steak dinner. Use the jar for fun and you won’t be so tempted to touch that savings account. Paying yourself first doesn’t just mean paying your future self, it means reminding yourself that all this work and time and worry about money is done so that YOU can be happy and secure.

© 2008®. Michael G. Peterson is a co-founder and Spokesman of American Credit Foundation, an IRS 501 (c)(3) non-profit consumer credit counseling organization that has assisted thousands of individuals and families with their financial situations through seminars, education, counseling services, and, debt management plans. For more information, and free consumer resources visit

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