“Pay yourself first” is one of the first pieces of advice you will hear here from pretty much any financial advisor or finance blogger. It almost doesn’t even need to be said. Almost.
Unfortunately, most 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 an American’s savings account is only about five thousand dollars. This tells me that most Americans aren’t paying themselves first.
Why Should I Pay Myself First?
You should pay yourself first because future you will thank yourself! 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 significantly in years to come.
What does paying yourself mean?
Paying yourself first means setting a portion of your paycheck aside for future you before paying your bills and buying stuff. Many people pay all of their bills and buy all of their wants 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 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 method is to put it on autopilot. 7% of my paycheck is automatically put into my retirement account, and I have another 3% automatically placed into various savings accounts. So technically, I never even see a complete 10% of my paycheck. It goes to the most essential 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?
The best way to pay yourself is by contributing to some retirement account, especially if you have an employer match. There are other options; 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. This guide will give you some ideas on investing your money outside of a traditional retirement account. You can also refer to our guide to financial freedom, which will teach you the building blocks to achieving financial independence and give you a solid idea of where some of your money should go.
It’s impossible to overstate how vital paying yourself first really is. We want everyone to succeed and achieve the type of financial independence that works best for them. Paying yourself first is the first step to getting there.
How Do I Pay Myself First With No Money?
I get it. Sometimes you can’t pay yourself. There’s not enough money to pay the essential bills and buy food; how can you even think about saving?
If you are in this position, there is help available. Government programs can help you pay the bills, and food banks can help keep your family fed. The next step is improving your situation to have money to spare with each paycheck.
See if there is anything you can cut back on. Sometimes, we aren’t fully aware of savings in our budgets. Next, try to increase your income. You can do this by picking up a side hustle or improving your skills to get a better job. These things aren’t easy, but if your situation is dire, you need to do what you can to survive and improve your circumstances.
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.