This is part of our Financial Literacy Month Question and Answer series

Question: I have a financial question (this is one of those ones I think I’m “supposed” to know the answer to, and yet, I don’t, and I’m having trouble finding someone who does know the answer, so I thought I’d ask you. When budgeting books and programs say “Pay yourself first” what does that mean? Does it mean pay your savings account and keep it there? Give yourself treat money to go spend? Pay your rent before paying anyone else who might want your money? Buy food before spending more money on your buisness? I keep running into that phrase, like I”m supposed to know what it means, and I simply don’t know and no one seems to be explaining it. If you’ve got an answer, I’d love to hear it! ~ Marianne

Answer: Hi Marianne, I’m sure you’re not the only one who has this question!

“Paying yourself first” is putting away money for your Financial Freedom/Retirement.

This would include money saved in an IRA, 401(k)/403(b), SEP (for self-employed people) or a Roth IRA. This money will begin working for you in the form of compound interest, dividends, interest and investment growth (depending on what you invest it in). That’s how people really get wealthy — making their money work hard for them instead of working hard for their money!

A recommended percentage is 10% or more. Of course, you want to have your debts paid off, too. After that you can set aside money for other things you want or to play with as well as necessities, etc. Women are encouraged to set aside 12% because we often make less, take time off for kids and parents and live longer.

The best time to start saving for retirement is the day you get your first job, the second best time is right now!

Warmly, Cindy