How to Pay Yourself First

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You may have heard the term “Pay Yourself First”, and wondered what it means or how to pay yourself first?

While this is a great concept, it requires discipline and dedication on your part. It probably will also involve sacrifices, like letting go of certain pleasures, and spendings. In the long run, the result you get from this discipline will be well worth it.

An African adage says “you don’t eat with all your ten fingers”. This is speaking figuratively, of course 🙂 In other words, don’t spend all your earnings. This is why “paying yourself first” is essential. It helps you develop the discipline of putting something aside for the future.

This blog post teaches what “paying yourself first” means, the benefits, and how to get started.

What is paying yourself first:

Simply put, this is a way of saving or investing part of every income you earn. It is a way to prioritize putting aside some of your income, before other expenses, and spendings. In order words, before you spend on anything, or anyone else, you first put something away, just for you!

There are varieties of options you can use to pay yourself first. Some are using cash savings account, or you may decide to have the funds moved to your retirement account such as a 401K. You can also send it directly to an investment account, and have it auto-invested. Whatever you do will depend largely on you financial goals.

Benefits of paying yourself first:

It enables you to save or invest consistently, especially if you struggle with saving/investing.
You always “remember” to save/invest, since it is often automated
It enables you to be more careful in managing your resources. Simply put, you become more frugal as you have less income available for spending.
You are able to grow your savings and/or investments.
You can steadily build your emergency fund, and have money saved for emergency spending.
If you have a major expense coming (like wedding, new house, car etc), this is a great way to save for down payments on a house, or even to pay off the car!
You get some peace of mind. Knowing you have some savings gives you some level of confidence and peace.

How do you Pay Yourself first?

First decide how much you can afford to put aside from every paycheck/income. This may be tricky. Thinking you cannot afford to put away any amount? Then, check your budget to see what expense you can cut down on, or even eliminate.
Decide where you want this percentage of your income to be saved or invested. It may mean opening a new account just for this.
Make a decision on how much, or what percentage of your payroll check you plan to save or invest.
Set up automatic deposits be paid into a savings (or investment) account, depending on your financial goals and objectives.
If you are self-employed, have a pre-decided amount automatically moved to your personal savings or investment account on certain dates of the month.
Send some percentage of your paycheck consistently into an IRA or 401K account. Make sure it is automated, so you never forget each time.

Make a commitment to start paying yourself first, no matter how little. You can gradually increase that amount as your situation changes. In addition, this should not replace other ways you have been investing, or saving. Rather, let this complement what you’re already doing.

A word of caution though! If you have high interest credit card debts, it is advisable to take care of those first.

In what ways have you been paying yourself? If you are yet to start, which of these ways appeal to you? Let’s know your thoughts 🙂