Why I Treat My Savings as a Must-Pay Bill

There are some simple reasons why I make sure I'm putting money into savings.

When I created the budget I live on, I made a list of my essential bills first. That way, I can be certain I allocate money to cover them before distributing any remaining funds to discretionary expenses.

My essential bills include obligations to creditors, such as my monthly mortgage payment. But they also include sending money to savings. In fact, I treat investing in retirement accounts, as well as several other savings accounts (including my emergency fund, vacation fund, and home repair fund), as must-pay bills that get the same level of priority as my obligations to others.

Here's why.

Savings really is essential

The biggest reason I consider investing in savings accounts to be a crucial monthly expense is because not saving money can lead to a host of financial problems.

Now, paying bills is important to avoid ruining your credit and facing financial disaster, such as foreclosure or eviction. But for me, it's equally essential to save money to avoid other types of financial crises.

Without savings, for example, it would be very difficult to live as a retiree -- Social Security benefits replace only about 40% of preretirement income (not the 80% to 90% most experts recommend). Without savings, a home repair bill, disaster, or trip could also lead to debt, which can cause long-term financial hardship.

Since I believe that my financial stability depends on having plenty of money in savings -- just as it depends on paying all of my other bills -- I see no reason to treat investments in my retirement and other savings accounts differently than my mortgage, monthly phone bill, utilities, and other obligations that I'm 100% certain to fulfill.

Treating savings as a must-pay bill gives it the priority it deserves

The other big reason I treat savings as a must-pay bill is because by doing so I can ensure that I'm actually going to accomplish my financial goals -- and that I won't instead spend money on things I regret.

I've determined exactly how much I need to invest each month to accomplish different financial goals, such as ensuring my retirement nest egg is the desired size before my preferred retirement date and making certain I have money for major home repairs should they arise. Since I know what I need to invest, I budget for that amount as one of my top priorities.

By paying myself first, along with outside companies I have obligations to, I don't end up short-changing myself because too much money goes to other things, leaving me with too little left over to hit my savings targets. I work the rest of my budget around my monthly savings targets so I'll know for sure I can set up automated payments to my savings accounts -- and so I can enjoy spending what's left over without worries that I'm doing the wrong thing with my money.

Treating my savings as a must-pay bill has ensured I consistently invest the money I need over many years -- and it's something that I believe everyone should consider doing.