We’ve heard it a lot: “Pay yourself first!” But what does that mean? If we were truly paying ourselves, wouldn’t we pay ourselves more? And more often? Kidding aside, this old saying indeed has staying paying power because it really is an effective way to save money. And who couldn’t stand to save a little more money? Let’s take a deep dive into what it means to pay yourself first, and how you can achieve this goal consistently.
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What It Means
Paying yourself first simply means prioritizing your savings over all else. When you prioritize saving, you will naturally spend less because you will have less to spend. This can be a lot less stressful than checking your balance every time you grab a latte. Essentially, any attempt at automatically rerouting money from your paycheck directly to a savings account is considered paying yourself first. When you have a percentage of each paycheck automatically deposited into a 401(k), that’s paying yourself first. When you deposit $50 into your savings account with every paycheck, that’s paying yourself first. Basically, any effort to remove some set amount of money from the equation before you tackle your budget and living expenses fits the bill.
Why It’s Effective
Most people who are staring an extra $50 in the face will tend toward finding a way to spend that $50. It’s just human nature. But if you move that $50 out of your checking account (before you have the chance to be tempted by it) and into an account that is earmarked for savings, most people will be able to hold onto it until they really need it for a rainy day.
How You Can Achieve It
Like anything else, practice makes perfect. Often, the hardest part is getting started. Follow these easy steps to better manage your money by paying yourself first:
- Be mindful. Decide exactly what your savings goals are so that you are saving with a clear purpose. It’s easier to stay motivated when you know that you are not just saving for a rainy day, but specifically for airline tickets or spring break hotel accommodations or a new AC unit. You decide what you need.
- Automate a contribution to your savings account with every. single. paycheck. Once you see how easy it is to go without, say $20 from every paycheck, it will get easier to increase the amount over time. Set up the payment to occur via transfer or direct deposit. If you can set it and forget it, your chances of success increase significantly.
- Monitor your savings, and check in with yourself. Every few months, ask yourself, can I give myself a raise? Increase your payments to yourself as often as you can.
- Contribute to your employer-sponsored savings plan, especially if your employer has a matching program. This is not only a great way to pay yourself first, but these plans often have the added benefit of tax breaks.1
- Keep the change. Some people literally empty their pockets into a jar at home. Some people use fancy apps that round up to transfer pennies on the dollar to a savings account. Either way, this is an easy way to contribute a little every day to your savings account without feeling as though you’re missing out.
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