Pay Yourself First – 7 Easy Ways To Get Started Today

pay yourself first

Learning how to pay yourself first is becoming more and more popular in the world of personal finance. Essentially, paying yourself first means that the first “bill” you pay should be to your yourself in the form of a savings or retirement account.

Most people do this the other way around: They pay other bills first and hope to save whatever’s left over. This article will go over the importance of paying yourself first and provide some tips and tricks on how to start making your personal savings a priority.

Why Pay Yourself First?

As mentioned in the introduction, not many people pay themselves before paying others. They pay the bank, the credit card company, the landlord, etc. While all of these things are important and we in no way advocate skipping out on bills, individuals should make an effort to save for themselves first no matter how small the amount.

The earlier individuals start saving the better. Simply investing $10 a month over the course of 50 years, with an estimated 7% return, will net you $54,799. That statistic alone should be a good motivator to start saving more.

By saving more, earlier, you also have a much better shot at retiring early. One thing it comes down to is that paying yourself first gives you more freedom. Having extra cash for emergencies, more money for retirement, etc. will give you a better chance of living the life you want.

It’s important to mention that staying out of debt is very important and you shouldn’t pay yourself as much if you are in debt. Instead, focus on getting out of debt and save a little less. Saving seemingly meaningless amounts can still add up, as showed in the example above.

7 Ways To Get Started and Pay Yourself First

1. Create A Budget

The backbone of being able to pay yourself first is a good budget. It is important to know exactly how much you spend on services and debts so you can figure out how much you can pay yourself. A good budget will help you keep tabs on your spending and cut extraneous costs. This is also a great first step in developing sound financial habits.

2. Treat Yourself Like A Bill.

This is simple enough: make saving money something you have to do; not something that’s optional. You can use your budget to find out how much is feasible, but don’t lower the amount you save once you figure out that number. Once you miss one “payment” you are likely to miss more; repercussions of not saving aren’t felt for years.

3. Find A Place To Save It.

Once you decide how much you want to save, you will have to figure out where you want to save it. Typically, this is done in tax-advantaged retirement accounts like HSAs, 401(k)s, and IRAs. Taxable brokerage accounts should be considered after maxing out contributions to the last three. Savings accounts are always an option, but the returns aren’t nearly as good (but they are safer).

4. Automate it

Once you determine how much you want to save and where you want to put it, automate it! This way you don’t have to think about it and you will budget around the money you have left. Many banks and brokerages are offering the ability to automatically withdrawal or direct deposit a certain amount of money every month. By not asking “Hey, do you want to save $X this month?” they do it automatically. This helps many people save and not backing out of the last minute because “something came up”.

5. Make It Invisible

Paying yourself straight out of your paycheck at work is probably one of the best ways to ensure you pay yourself first. Contributions to 401(k)s and HSAs can be taken right out of your paycheck so you never see the money. Not seeing the money means you’ll be much less likely to spend it. Taking this step even further: don’t look at the values of your investment accounts that often. It can be addicting to continually check account values weekly, or even daily. Doing so will only drive you crazy and sometimes make unnecessary changes.

6. Ignore Raises and Extra Income

One popular (but hard) way to pay yourself more is to ‘ignore’ raises and those moments you get extra monthly income such as you pay your car loan off or you remortgage your house and save $100. You see most will increase their expenses because they now have the extra money coming in and soon are back to living the same life they already where with no really added value to show for it.

Ideally when you get a raise or extra money, you should take the extra money and increase the amount you pay yourself by that much. This way, you remain living the way you always have but are saving much more money and adding peace of mind.

7. Start Small

If you’re still having a hard time getting started, start small. Try putting an extra $10 per month in a savings account that you never touch. Setup direct deposit with your employer so you never have to think about it, and watch it grow. Once you see it’s possible you will be able to, and probably want to, save more.

Closing

Paying yourself first isn’t a new concept; people for generations have discussed the importance of saving for the future. When you start to pay yourself first, you are making your future a priority while developing sound financial habits, like budgeting. Always make sure you pay your bills and don’t go in to debt, but add “The Bank of You” to the list of bills you need to pay each month. You’ll be surprised how much better it makes you feel!

Do you already Pay Yourself First? If so please share your experiences down below in the comments so other who are on the fence about it can see the value and learn. When I first started it was just $100 a month and that was a stretch. Comment below on what you will commit to doing starting today!

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