Pay Yourself First

“Pay yourself first” is a common phrase in personal financial planning that means to first save from each paycheck at the time you receive the money. In other words, you paying yourself before you begin paying your monthly living expenses and make any discretionary purchases.

The system of Pay Yourself First

The system of paying yourself first is championed by many in personal finance as a very effective way to ensure that people continue to make savings contributions week after week and month after month. It helps the temptation to skip a given month’s contribution and the risk that money will be spent on other things before the contribution has been made.
Regular, consistent savings contributions go a long way toward building a long-term nest egg, and some financial professionals even go so far as to call "pay yourself first" the golden rule of personal finance.

To simplify, to pay yourself first means: before you spend money on anything else in your budget, set aside a percentage of income to save. The first thing you should pay each month is you. The consistency of paying yourself first can have tremendous advantages down the road and help a person develop savings and wealth. I wish that I had heard this earlier in my adulthood.

Why pay yourself first?

If you are just starting out in life, in the real world, saving may seem close to impossible. You now have grown up bills and responsibilities, rent or mortgage, a car payment, and a student loan and you want to save but there is nothing left after you take care of your responsibilities. And there lies the problem. Most people save what’s left over after bills and after discretionary spending.

And as you mature and grow older, it seems as there are more responsibilities, kids, and doctor bills, and it seems that there will always be a reason to not be ready and delay. But if you don’t develop the saving habit now, there are always going to be reasons to delay.

Here are several reasons to start saving now instead of waiting until next year or even later:

• Paying you first build sound financial habits. Unfortunately, when follow the normal spending behavior of expenses, entertainment, and then saving, there is usually little left to save. Instead of being normal, be abnormal and put saving first. You will begin to build a habit of good behavior with money, and surprisingly, you will be able set money aside before you find reasons to spend it.
• By paying yourself first, you will build up cash for an emergency fund. Regular contributions are an excellent way to build an emergency fund nest egg. You can use the money to deal with emergencies. You can use it to purchase a house. You can use it to save for retirement. Paying yourself first gives you peace-of-mind and opens up opportunities and choices.
• When you do pay yourself first, you are making savings a priority mentally. You’re telling yourself that it is important to save and that your future is important too, like water and landlord. Building savings is a powerful motivator.

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