There are a couple of ways to go about paying yourself first depending on your situation and personality. If you have the discipline of being able to manage your money without being tempted to spend before you save or spend what you save, then a more manual approach to paying yourself first can work. It’s actually the approach that I found works for me. If not, utilize your employer’s payroll deduction program, if available, and arrange for a fixed amount to be deducted from your paycheck into whatever retirement and/or savings plans your company may offer. These funds will be sent to your account(s) by your employer before you even get your check. Having money taken out of your check through payroll deductions before you get your pay is the simplest way of making sure to Pay Yourself First. Not to mention the added benefits of being pre-tax deductions and in some cases employer matched. Whichever strategies to save you choose that works for you, paying yourself first means exactly what it says and it is the one proven, simple way to financial freedom and wealth building.
What it Means to Pay Yourself First
A simple financial principle that many people don’t incorporate into their budget is to consider that saving money is an expense. Some people may have a hard time understanding the idea of paying yourself first, let alone applying the concept. Let’s face it, after paying the rent/mortgage, utilities, car payment, insurance, credit cards, etc., more often than not, there is never anything left over to save. That’s all the more reason to pay yourself first, before anything or anyone else gets paid! And the key to accomplishing that is to consider your savings to be an expense.
If you treat saving like an expense in your budget, then paying yourself first becomes less challenging. In other words you will be paying yourself first by treating your savings like a bill as you would any other bill, but make it the most important bill to pay. Make it the first bill you pay over any other bill. What can be more important than you? I know what you’re probably thinking, if I do that, something will have to go without getting paid. And if that’s the case, then it will force you to look harder at what you could cut back on, find discounts for and/or even figure out how to increase your income in some way so those expenses don’t go un-paid. One thing is for sure, there can’t be financial freedom if you don’t pay yourself first.
“You must learn to save first and spend afterwards.” – John Poole
Saving money is the first step to financial freedom and unfortunately it’s something that many people struggle with. They struggle because they don’t have a plan for how to save and how much to save. The “how to” for saving comes from instilling the habit of paying yourself first. Once you come to realize “how”, then the question becomes “how much”? When it comes to saving and paying yourself first, the typical rule of thumb is to save at least 10% of your income. 10% is an ideal place to start and over time, if possible, gradually increase that amount. With any increases in income along the way, you may be able to eventually work your way up to even save 20% or more.
If 10% seems like too big of a stretch, then start with any percentage you’re comfortable with. Saving any amount, even the smallest amount is always better than nothing, but make that effort to increase that percentage as much and as often as possible to the 10% minimum. A commonly used strategy to help gradually increase the percentage of how much of your income you save is to apply a portion (I recommend at least half) of any pay raises you receive. Just remember, the more aggressive you get with that percentage, the quicker you’ll reach your financial goals.
Before you go, I want to invite you to join my FREE email list community. By signing up today, you’ll get notifications of my latest posts. Plus access to my FREE Resources Library. Click Here to sign up!
