Pay yourself first is one of the first pieces of advice you will here from pretty much any financial advisor or finance blogger. It almost doesn’t even need to be said. Almost.
Unfortunately, a majority of people in the United States don’t follow this tried and true advice. According to a recent survey of Consumer Finances published by Business Insider the median amount in American’s savings account is only about five thousand dollars. This tells me that most American’s aren’t paying themselves first.
Why Should I Pay Myself First?
You should pay yourself first because future you will thank you! Future you will be able to live comfortably in retirement. Future you will have the money to take that dream vacation. You should pay yourself first because you want to be secure and comfortable in the future. It may take some sacrifice now, but even saving a little bit today can pay off big years down the line.
What does paying yourself mean?
Paying yourself first means setting a portion of your paycheck aside for future you before paying your bills and before buying stuff. Many people pay all of their bills and buy all of their stuff first, and then decide if they should save something from the (usually) paltry leftovers. I get it, sometimes you have a lot of bills, and there isn’t a lot of paycheck to go around. If you are in this situation, I understand not being able to put aside some money for savings. But before saying you can’t, investigate your budget and make sure that you don’t have any fat that you can cut. Most people have at least a little fat; but we all know how much harder it is to lose that last tiny bit.
How should you pay yourself first
There are a few ways to pay yourself first, but I think the most tried and true way is to put it on autopilot. I have 7% of my paycheck automatically put into my retirement account, and I have another 3% automatically placed into various savings accounts. So technically, I never even see a full 10% of my paycheck. It goes to the most important thing – Me! The remaining 90% is used for bills, fun, incidentals and additional savings (technically, I pay myself first, and then I pay myself again with whatever is left over after the bills are paid).
What should I do with my paycheck to me?
In my opinion, the best way to pay yourself is by contributing to some type of retirement account; especially if you have an employer match. There are other options as well; you can put money into a savings account or a regular investment account. The main point is to put it someplace where you won’t accidentally spend it or include it in your monthly budget. If you need some tips on how to get started, check out our Beginner’s Guide to Investing.
It’s impossible to overstate how important paying yourself first really is. We want everyone to succeed and everyone to achieve the type of financial independence that works best for them. Paying yourself first is the first step to getting there.