This is a continuation of the Bucket System Series - (read part 1 here: #1 First Things First).
1) Pay Future-You First
It's the end of the month and you receive your paycheck.
"Immediately, pay your future self first".
I always decide on the amount of money that I'll save for that particular month (say 30%?) and immediately after receiving my paycheck, I'll transfer that amount into a separate savings account.
This account belongs to future-you. Your emergency funds and funds for investments belong here.
Think of it this way, whenever you withdraw money from this account to spend, you're borrowing from your future self.
But if you invest the money that is in this account, 'future-you' will thank you.
2) Automate As Best Possible
The main reason why people don't save & invest is NOT because they do not see the benefits of saving & investing.
Smokers understand that smoking is harmful to their health, but yet they continue smoking. Heavy drinkers know that alcohol damages their liver, but yet they continue swigging it. Gamblers know that the house always wins, but yet they continue to challenge the house.
It is because we fail psychologically.
We, as humans do not have sufficient psychological strength to resist temptation and change our habits overnight. This is why new year's resolutions fail.
If it is a mind game, why try to play it? Automate it instead.
Set monthly transfers to your future self (read point 1), pay your debts automatically, pay your phone bills automatically, settle your car payments automatically, and the list goes on & on...
When you automate, 'future-you' wins over and over again.
3) Pay Your Bills Within The First Week
Now you may say that paying your bills within the first week is silly because there is a time-value attached to it. Some will argue that you should always delay paying your bills because that money can be invested somewhere else.
Rubbish, I'll say.
Unless you're a big time trader who can churn profits within a few days from your paycheck each month (but I doubt so, otherwise you'll be on Bloomberg instead of White Collar Freedom), do you actually think that delaying your bill payments will actually benefit you in any way?
If you think so, you're delusional. We are weak creatures, remember?
Again, there is a psychological element attached to this - the more we delay paying our bills/debt, the more WE WILL delay paying our bills/debt.
It is as simple as that. Financial discipline 101.