You might have heard the term paying yourself first, which just means putting your safety, needs, and especially your future needs, first before you think about other things.
Let’s give ourselves an example. Let’s say that you want to buy a laptop that is $624 and you currently do not have the $624 dollars to buy that laptop. That laptop will help you with your work, maybe it’ll help you with school or can help your family in some way, and can also provide other benefits that you want. So you want your future self to have this laptop and you say “I want this laptop over the course of the next year”.
The paying yourself first philosophy would say “all right, every paycheck, how much do I have to put aside first before I do anything else to make sure that I’m gonna get my hands on this laptop?”.
Let’s say that you’re paid weekly. If we are paid weekly, how much do we have to put aside for every paycheck in order to at the end of the year have $624 dollars saved up for the laptop? Well, if we’re thinking weekly, we have to save that $624 dollars over the number of weeks in a year. So we’re going to divide that by 52 weeks and you could do that by hand or you could punch that into a calculator and you’re going to see that you’re going to have to save $12 per week which doesn’t feel like a lot.
What if you instead of getting paid weekly, you’re paid bi-weekly? So that means you’re getting paid every other week or every two weeks? Well then you’re going to have to save twice as much since it’s going it’s not covering just one week of savings, it’s two weeks of savings. So in that situation it’s going to be $24 dollars per every two weeks.
What if you are being paid semi-monthly? You might think that these are similar that if you’re paid every other week or if you’re paid semi-monthly, which means you’re paid twice a month, but months don’t have exactly four weeks or at least most months don’t have exactly four weeks. The way that you would calculate for semi monthly is you say “all right, there’s 12 months in a year so there’s 24 semi months in a year”. So it would be $624 dollars divided by those 24 semi months, and then that would get you $26 dollars per semi month.
Lastly, if you’re paid monthly, you’re going to take that $624 dollars and divide it by the 12 months and you would want to set aside $52 dollars per month.
This video gave us a little bit of practice thinking about our paychecks, whether we’re getting paid weekly, bi-weekly, semi-monthly or monthly, but it’s really thinking about “hey, you have a pretty big goal over here, but if you divide it by the number of paychecks that you’re getting in a year, you can then think about how much you have to set aside paying yourself first every paycheck so that it will add up over the course of a year (whatever time period you’re thinking about) so that you can get and reach your goal”.