Pay yourself first.

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Keepcalm
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Pay yourself first.

Post by Keepcalm » Mon Jul 24, 2017 2:59 pm

Curious on how most here pay themselves every month. Do you take a cut out of each paycheck/income source or do you wait until the end of the month and transfer over what is remaining?

I have been removing for example 20% of every income source I receive the day I get it and transferring it to my savings/investment vehicle. However sometimes I feel like I'm being a little extreme doing it this way.

Thesaints
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Re: Pay yourself first.

Post by Thesaints » Mon Jul 24, 2017 3:01 pm

Never engaged in that kind of mental accounting. I guess it depends on one's financial discipline whether there is any value in it, or not.

Keepcalm
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Re: Pay yourself first.

Post by Keepcalm » Mon Jul 24, 2017 3:03 pm

Thesaints wrote:Never engaged in that kind of mental accounting. I guess it depends on one's financial discipline whether there is any value in it, or not.
haha I would assume my guess of being a little extreme is accurate.

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flamesabers
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Re: Pay yourself first.

Post by flamesabers » Mon Jul 24, 2017 3:03 pm

My 401k contributions represent a significant chunk of my savings from my paycheck. What's left over after I've paid the bills I usually either invest the money or put it my money market account.

lazydavid
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Re: Pay yourself first.

Post by lazydavid » Mon Jul 24, 2017 3:03 pm

The second option you listed could be referred to as "paying yourself last".

To answer your question, most of our saving comes out of our paychecks before they hit our bank account. Some things we can't do as a payroll deduction, so we just do those on a schedule, usually monthly.

tsewell10
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Re: Pay yourself first.

Post by tsewell10 » Mon Jul 24, 2017 3:11 pm

We have all of our contributions set to deduct automatically. My wife and I both get paid on the same Fridays so we have everything set to automatically move to our IRA's, HSA, 529's, and taxable the following Tuesday. We have a yearly total contribution we would like to hit, set the contributions to match, and live on the remainder.

Iliketoridemybike
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Re: Pay yourself first.

Post by Iliketoridemybike » Mon Jul 24, 2017 3:14 pm

401's are auto. The rest of my "savings bill" is invested at the beginning of each month right from my checking account.

SGM
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Re: Pay yourself first.

Post by SGM » Mon Jul 24, 2017 3:44 pm

Paying yourself first was easy with deductions for 401ks when I was working. In January I always funded an IRA and a spousal IRA. The rest of my taxable income went into a brokerage account first. I always kept a little in the bank for ongoing expenses. My emergency account was part of my investment account. It wasn't truly an emergency account the way the term is usually used. I sat on very little cash or cash like investments. No true emergencies came up, but I bought more expensive items from income and growth producing accounts.

Thesaints
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Re: Pay yourself first.

Post by Thesaints » Mon Jul 24, 2017 3:49 pm

Not sure I even understand the concept of "paying oneself". Unless I throw money out of the window, I obtain goods/services of comparable value in exchange. I'm always paying myself, although in different forms.

Keepcalm
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Re: Pay yourself first.

Post by Keepcalm » Mon Jul 24, 2017 3:53 pm

Thesaints wrote:Not sure I even understand the concept of "paying oneself". Unless I throw money out of the window, I obtain goods/services of comparable value in exchange. I'm always paying myself, although in different forms.
That would be an expense. Paying yourself is the act of investing/saving.

deskjockey
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Re: Pay yourself first.

Post by deskjockey » Mon Jul 24, 2017 3:53 pm

We have most of our savings taken out via payroll deduction and have contributions to our 529 plans automatically deducted from checking. For taxable savings, I manually move amounts over after bills are paid because our monthly expenses are variable enough to make automated withdrawals hard to pull off. We have a budget that I track closely to prevent us from spending what we're planning on saving, however, so even though we pay our taxable savings "last," we make sure they are not "least."

Thesaints
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Re: Pay yourself first.

Post by Thesaints » Mon Jul 24, 2017 3:55 pm

Keepcalm wrote:
Thesaints wrote:Not sure I even understand the concept of "paying oneself". Unless I throw money out of the window, I obtain goods/services of comparable value in exchange. I'm always paying myself, although in different forms.
That would be an expense. Paying yourself is the act of investing/saving.
But eventually everything comes down to quality of life. If I save 100% and starve for lack of food, I don't feel I've paid myself first.

Keepcalm
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Re: Pay yourself first.

Post by Keepcalm » Mon Jul 24, 2017 3:57 pm

Thesaints wrote:
Keepcalm wrote:
Thesaints wrote:Not sure I even understand the concept of "paying oneself". Unless I throw money out of the window, I obtain goods/services of comparable value in exchange. I'm always paying myself, although in different forms.
That would be an expense. Paying yourself is the act of investing/saving.
But eventually everything comes down to quality of life. If I save 100% and starve for lack of food, I don't feel I've paid myself first.
That's called budgeting. Allocation to food,bills,fuel, etc including savings.

montanagirl
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Re: Pay yourself first.

Post by montanagirl » Mon Jul 24, 2017 3:59 pm

I do. I did it today. I have a rough budget in my head, and scrape what's left over to savings.

Love the concept. It characterizes savings as reward rather than self-denial.

bigred77
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Re: Pay yourself first.

Post by bigred77 » Mon Jul 24, 2017 4:05 pm

I do this and think it has helped me, especially at the beginning, and don't foresee changing my strategy.

I have my paycheck split up into a bunch of accounts (I'm sure I annoy my HR group a little bit) so before a dime of my paycheck ever hits an account with debit card access or check writing privileges: my 401k, Roth IRA, wife's Roth IRA, and vacation fund are all funded. Then I know I can spend the rest.

thangngo
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Re: Pay yourself first.

Post by thangngo » Mon Jul 24, 2017 4:07 pm

Keepcalm wrote:Curious on how most here pay themselves every month. Do you take a cut out of each paycheck/income source or do you wait until the end of the month and transfer over what is remaining?

I have been removing for example 20% of every income source I receive the day I get it and transferring it to my savings/investment vehicle. However sometimes I feel like I'm being a little extreme doing it this way.
Every two weeks:
1. $750 deducted from paycheck goes to 401k.
2. $450 automatic deposit to Roth IRA
3. $500 automatic deposit to taxable

At the end of the month, depends on how we do with the budget, the remaining goes to online savings and taxable accounts in the ratio of 50/50.

In other words, I pay myself first and also pay myself last.

KlangFool
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Re: Pay yourself first.

Post by KlangFool » Mon Jul 24, 2017 4:08 pm

OP,

1) I keep a checking account for my regular expense and 3 months of emergency fund

2) The other 9 months of emergency fund is in my Vanguard Mony Market account

3) Every pay check I auto-deduct my 401K and HSA contribution. The rest of the money goes into my checking account.

4) Every few months, I transfer my extra savings from the checking account into my Vanguard Money Market Account.

5) Every year, around March of the year, I contribute to the max of 2 x Roth IRA from my Vanguard Money Market account.

KlangFool

indexonlyplease
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Location: Pembroke Pines, FL

Re: Pay yourself first.

Post by indexonlyplease » Mon Jul 24, 2017 4:31 pm

Keepcalm wrote:Curious on how most here pay themselves every month. Do you take a cut out of each paycheck/income source or do you wait until the end of the month and transfer over what is remaining?

I have been removing for example 20% of every income source I receive the day I get it and transferring it to my savings/investment vehicle. However sometimes I feel like I'm being a little extreme doing it this way.
Investment advise is to invest 15-20% of your income. So figure what that is and put it into your 401k weekly, biweekly, monthly or how every you get paid. If you max out the 401k go for the Roth IRA. That is also gross money.

Real easy. You make 100k, 20k to invest. 18k into 401k, 2k into Roth IRA. If you can do more max out the Roth $5500

Frank Grimes
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Re: Pay yourself first.

Post by Frank Grimes » Mon Jul 24, 2017 4:35 pm

Payroll deductions for 401ks. Both of our paychecks flow into the checking account and all bills are paid from there so after a little while once we've built up too much extra cash there we transfer a lump into taxable brokerage. We fund the roths in lump sums once a year via backdoor. The 529s are funded once a year in a lump sum as well.

expat
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Re: Pay yourself first.

Post by expat » Mon Jul 24, 2017 4:37 pm

I get paid first always!

rr2
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Re: Pay yourself first.

Post by rr2 » Mon Jul 24, 2017 4:44 pm

This is the strategy we use.

-- Payroll deductions to 401ks twice a month from each paycheck (7th and 22nd of each month).
-- IRA contributions around the 15th of each month.
-- Taxable account contribution the first of each month.

All of the above are automated. The rest is in the checking account. We also have a money market account which contains an emergency fund as well as savings required for large short/intermediate term expenses. Every few months, I'll check the balance in the checking account. If over two months of expenses, then move it to the money market account.

BanquetBeer
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Re: Pay yourself first.

Post by BanquetBeer » Mon Jul 24, 2017 4:44 pm

Used to just watch spending and see how much I can transfer every month to savings. Now after marriage/kid and joint spending - I set a budget for family spending. I pay into the joint account first and save the rest (raises/bonus, etc). As time goes on we will continue to review spending and see if we need to give our spending a raise or cut (after daycare).

Used to be I was budgeting for myself and I dont spend money. With a family the communal mindset is more around spend capriciously so enforcing a limited budget was critical. Depends on your mentality.

Json
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Re: Pay yourself first.

Post by Json » Mon Jul 24, 2017 10:23 pm

I do something slightly different:
Every year I estimate the expenses for the year then divide that amount by 26 (pay-periods). That's the amount that goes into my every day checking account. Everything else goes into Vanguard. The amount that goes into checking has remained relatively the same for the past few years even when I've received raises along the way. It works for me because I based it on what I spend, not on how much I make.

MathWizard
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Re: Pay yourself first.

Post by MathWizard » Mon Jul 24, 2017 11:44 pm

Pay yourself first if you want to be successful.

People who pay themselves last find that there is never enough at the end of the month.
Just human nature, I think.

Think how painful it would be to make the decision of how much to put away at the end of each month, especially if
you have a spouse that you have to negotiate this with.

How much easier to make the decision once and be done with it.

I put most into retirement accounts, and some into short-term saving account automatically every month. That way when
we need a new fridge, or pay property taxes, we just pull from savings, and we don't go raiding our retirement funds. Some
people call that an EF, bit I always just thought of it as a short-term account to even out cash flow. We have ready
access to some money, but the bulk of our savings goes into tax advantaged accounts.

Opal
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Joined: Mon Jul 24, 2017 11:47 pm

Re: Pay yourself first.

Post by Opal » Mon Jul 24, 2017 11:49 pm

Auto Transfer to Savings account form where it goes to investment account.

Stryker16
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Re: Pay yourself first.

Post by Stryker16 » Tue Jul 25, 2017 8:06 am

"Automate the Important"

401k, Roth IRA, 529, and House Fund are all automated...

2Birds1Stone
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Location: New York

Re: Pay yourself first.

Post by 2Birds1Stone » Tue Jul 25, 2017 8:06 am

Every month I contribute

$1,500 to 401k
$540 to HSA
$458 to Roth IRA

Anything over $100k in my high yield savings account gets spent into a taxable brokerage account once per quarter.

Grt2bOutdoors
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Location: New York

Re: Pay yourself first.

Post by Grt2bOutdoors » Tue Jul 25, 2017 8:20 am

Every pay cycle - 401k and taxable account contribution.
After expenses, if anything is left over - 50% to investments, 50% to savings
Why savings? - to accumulate enough to fully fund next years IRA contribution upfront - If I don't accumulate enough, then fund IRA on monthly basis.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

jlcnuke
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Re: Pay yourself first.

Post by jlcnuke » Tue Jul 25, 2017 8:36 am

Every week 401k and HSA contributions come out automatically from my paycheck. Every 2 weeks, planned taxable account and savings account contributions are deducted from my checking account on payday automatically. Roth payments I make manually out of my pay during weeks I get overtime until it's maxed out for the year.

LateStarter1975
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Re: Pay yourself first.

Post by LateStarter1975 » Tue Jul 25, 2017 8:53 am

KlangFool wrote:OP,

1) I keep a checking account for my regular expense and 3 months of emergency fund

2) The other 9 months of emergency fund is in my Vanguard Mony Market account

3) Every pay check I auto-deduct my 401K and HSA contribution. The rest of the money goes into my checking account.

4) Every few months, I transfer my extra savings from the checking account into my Vanguard Money Market Account.

5) Every year, around March of the year, I contribute to the max of 2 x Roth IRA from my Vanguard Money Market account.

KlangFool
+1. Always admire your simplicity at things Klangfool
Debt is dangerous...simple is beautiful

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knpstr
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Re: Pay yourself first.

Post by knpstr » Tue Jul 25, 2017 9:00 am

Keepcalm wrote:Do you take a cut out of each paycheck/income source or...
Yes, this is what you do.
You do it before you budget your other expenses as to always be saving for yourself.
Hence, "pay yourself first"
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Edie
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Re: Pay yourself first.

Post by Edie » Tue Jul 25, 2017 9:13 am

Pension contributions, max 457 and HSA all come out of my paycheck before I get it. Part of the budget is funding two IRAs (one Roth which gets funds monthly, the other is funded at the end of the year split between Roth and traditional, depending on where AGI is landing), and whenever the checking account gets too big (3x a year?), I move money into savings.

I guess that means I do both, but I freely admit it would be a lot harder to do without payroll deductions. It's much easier to save with 33% of my gross pay "out of sight, out of mind".

kpeercy
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Re: Pay yourself first.

Post by kpeercy » Tue Jul 25, 2017 9:40 am

The only thing that could be considered paying myself during the month is an auto-deduction from Vanguard for a target date fund. At the end of the month, I reconcile with Quicken and transfer my monthly "profit" to my High Yield Savings. I keep an average of $10k in my checking, because that's the maximum amount for which they'll pay a decent yield.

ETadvisor
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Re: Pay yourself first.

Post by ETadvisor » Tue Jul 25, 2017 11:04 am

KlangFool wrote:OP,

1) I keep a checking account for my regular expense and 3 months of emergency fund

2) The other 9 months of emergency fund is in my Vanguard Mony Market account

3) Every pay check I auto-deduct my 401K and HSA contribution. The rest of the money goes into my checking account.

4) Every few months, I transfer my extra savings from the checking account into my Vanguard Money Market Account.

5) Every year, around March of the year, I contribute to the max of 2 x Roth IRA from my Vanguard Money Market account.

KlangFool
+1 Same practical approach.

1) I keep a checking account for my regular expense and savings account (earmarked for hcola property taxes)

2) 12 months of emergency fund is in high yield savings account

3) Every pay check I auto-deduct my 401K and HSA contribution. The rest of the money goes into my checking account.

4) I transfer my extra savings from the checking account into my savings (earmarked for property taxes) and high yield savings account.

5) Every January, I contribute to the max of 2 x Roth IRA from my high yield savings account.

birdy
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Re: Pay yourself first.

Post by birdy » Tue Jul 25, 2017 11:14 am

I have lived my life using the same adage to "pay myself first". Which has always meant to me not spending everything you earn but instead "saving" some of it. Whether a money market/CD/investment, I pay myself before spending the rest.

birdy

LiterallyIronic
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Re: Pay yourself first.

Post by LiterallyIronic » Tue Jul 25, 2017 11:21 am

Keepcalm wrote:Do you take a cut out of each paycheck/income source
This is pretty much the way it's got to be done if you want it to get done at all.

Every paycheck, $50 goes into my 401k (we have no matching), something like the 5th and the 20th. Every month, Vanguard pulls $458 from our checking account on the 7th and puts it in my Roth IRA and then Vanguard does it again on the 12th and puts it in my wife's Roth IRA. That gets us up to $1,016 invested every month, which is just a hair over 20% of gross income.

If I waited until the end of the month to invest it, I'd probably find excuses not to.

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inittowinit
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Re: Pay yourself first.

Post by inittowinit » Tue Jul 25, 2017 12:01 pm

Automatic paycheck deductions for employer-sponsored retirement accounts (I never see the money so never miss it). Pension contributions are also automatically deducted from my paycheck.

In the past I have set up automatic transactions to fund my IRA over the course of the year (the paycheck money hits my bank account, but is scheduled for automatic investment within 4-5 days so I again don't have a chance to spend or miss it much).

Every month or two I will "sweep" any excess money in my checking account (I usually under-spend my budget) into a taxable brokerage account. This is done manually and not automated.

I usually get a sizable tax refund which I invest in my taxable account, except in rare cases where I've earmarked it for something else ahead of time.

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welderwannabe
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Re: Pay yourself first.

Post by welderwannabe » Tue Jul 25, 2017 2:09 pm

Like many others above I also use automatic withdrawals. I have Ally and Vanguard automatically withdrawal an amount equal to 25% of my net pay for the week, every week. Sometimes I have to transfer some back from Ally to cover expenses, but my wife and I have found this method causes us to spend less.

I up the amount they withdrawal every year.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

logicteach
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Re: Pay yourself first.

Post by logicteach » Tue Jul 25, 2017 3:12 pm

I transfer money to my various savings/IRA as soon as I get paid each month. If I have anything left over at the end of the month, I transfer that as well. The only disadvantage I've ever noticed is that I tend to think of myself as living paycheck to paycheck. I sometimes have to remind myself that's not really what the phrase means!

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Earl Lemongrab
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Re: Pay yourself first.

Post by Earl Lemongrab » Tue Jul 25, 2017 3:17 pm

I live a fairly simple and low-cost lifestyle. It goes like this:

1. I set my contribution rate to the 401(k) to 30% (max allowed by the plan).
2. Contribute to my Roth IRA.
3. Spend what I spend.
4. Anything left goes in taxable investing.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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gasdoc
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Re: Pay yourself first.

Post by gasdoc » Tue Jul 25, 2017 3:57 pm

I wish I could pay myself first. But both my paycheck's and my expenses vary widely month-to-month. I know what i need to save each year for my end of the year contribution to my retirement accounts, so I steer myself in that direction throughout the year. With Quicken, I track my "last 12 months" expenses and retirement contributions to help guide me.

gasdoc

downshiftme
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Re: Pay yourself first.

Post by downshiftme » Tue Jul 25, 2017 4:52 pm

I live a fairly simple and low-cost lifestyle. It goes like this:

1. I set my contribution rate to the 401(k) to 30% (max allowed by the plan).
2. Contribute to my Roth IRA.
3. Spend what I spend.
4. Anything left goes in taxable investing.
I have always understood the adage "Pay yourself first" to mean something like this. Every paycheck gets auto split between 401k and checking. Every checking deposit date, there is an auto transfer that moves some of it to savings. Thus I have "paid myself first" before any spendable money gets into my checking account. After that, I am free to spend, budget, divide for longer term goals, or whatever I want. Usually I spend less than the full paycheck amount and sweep the remainder into a frivolous splurge account. Sometimes I use that for a trip. Sometimes I sweep that back into savings if I have no plans for splurging in the immediate future. That's frugal, but not part of what I consider paying myself first. Paying myself first is what happens when the money first passes to me.

hightower
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Re: Pay yourself first.

Post by hightower » Tue Jul 25, 2017 4:58 pm

Automatic deductions from paychecks for 401k contributions. I then make sure to leave exactly enough cash in checking to cover all bills for the month. Once I know that is fully funded, I transfer everything else to various savings accounts. Right now it's all going towards debt pay down, but otherwise it would all go to the taxable account. I always carefully calculate how much I should have left for savings and make sure to take that out of checking asap. The key to success for me is not going over our budget on things.

tioscrooge
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Re: Pay yourself first.

Post by tioscrooge » Wed Jul 26, 2017 1:59 pm

I believe in pay yourself first.
Mental math certainly helps. And designating a savings acct as the pay yourself account has helped us.
We are a two earner family - and ever since we got married we have lived on one salary and put the higher salary in a savings account.
We periodically transfer the funds to investment account. Occasionally, we have used this account for needs (downpayment on a house), but for the most part the money goes to investments.

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