Pay Yourself First Sounds Great, But What Do Experts Really Mean by That?

“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.

What Does Paying Yourself First Mean?

It needs to be said because the fluffy phrase sounds great, but lacks meaning. 

I had a boyfriend once who was just terrible with money (one of the many reasons he’s an ex). He thought “paying himself first” meant buying all the things he wanted before paying his bills. 

I’m not even saying that in a mean way. He truly thought the advice meant he should treat himself with his paycheck.

It does not. 

Paying yourself first means setting aside a portion of your paycheck for Future You before paying your bills and making purchases.

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. 

Paying yourself first gives you options and helps ensure a secure retirement. It may take some sacrifice now, but even saving a little bit today pays off in dividends for years to come.

How To Pay Yourself First

A lot of people are like my ex. They get their paycheck and hopefully pay their bills before buying all the things. Saving money is an afterthought, if it’s even a thought at all. 

But by the time they get to the savings part, there’s nothing left. 

When you pay yourself first, you flip the script. Instead of prioritizing bills or desire, you prioritize savings. 

Here’s how to do it. 

Consider Your Financial Goals

If you’re used to living in the here and now, paying yourself first may seem weird. 

Determining your why helps a lot. 

Consider your top financial goals and life priorities. Think about all the things you’ve always wanted, like homeownership, a dream vacation, early retirement, or financial security. 

Those things are all within reach if you pay yourself first. You just need to want it more than you want the instant gratification of the new action figure. 

Set Priorities

A harsh truth about life is that we can’t have everything we want. You can’t quit your job tomorrow and guarantee financial stability for the rest of your life. 

Most people can’t fully fund their retirement accounts, emergency savings account, house funds, car fund, vacation fund, early retirement fund, and spend all their money on wants. 

But if you pick the thing you want most, you should be able to obtain it. You need to determine which financial goals you value most. 

Would you rather retire early or own a home? Take a dream vacation or drive a sports car? Eat dinner out every night or have a stable retirement?

There is no right or wrong answer to any of these questions (even the last one!). It’s your life and your money – you should live how you want. 

However, if you have never sat down and prioritized your spending based on your financial goals, you’re doing yourself a massive disservice. 

Decide what’s most important to you so that when you pay yourself first, the money goes towards the things you truly want. 

Put Savings on Autopilot

The easiest way to pay yourself first is to put it on autopilot. 

Set up automatic transfers of your paycheck so they go directly into your savings, retirement, and brokerage accounts.

If your company doesn’t offer these allocations, have the money transferred directly from your checking account regularly, and budget based on the cash you have post-transfer. 

Aim for a savings rate of at least 10%, but if you can’t manage that, start smaller. I started paying myself first with just $5 a paycheck. 

Try making your budget work on 95%, then 90% of your paycheck, to get into the habit of living on less. 

Dedicate Time for Budgeting

Every financial guru claims their budgeting method works best, so we’re not going to cover the different options. 

However, no matter how you do it, it’s crucial that you spend time reviewing your money. 

I spend an hour on my budget every time I get paid. Of course, I’ve already paid myself a little bit through financial allocations, but I always try to pay myself even more from each check. 

I examine all my bills, decide what I want to buy for the week, put a little aside for random purchases, and pay myself with the rest. 

Now that would technically be paying myself last if I didn’t already have allocations, but at least I’m being mindful about it. I decide how much I will spend in the next two weeks before my next check – I don’t just go with the flow and let the money evaporate from my account. 

The decision on what to spend is influenced by how much I want to pay myself. It all ties together. But I’d never be able to do it if I didn’t get intentional with my budget every time I got paid. 

What Should I Do with my Paycheck to Myself?

I’m so glad I convinced you to pay yourself first. You won’t regret it. 

But how do you pay yourself? What do you do with the money?

Like everything in personal finance, the answer depends. But here are my favorite options. 

Retirement Account

I think you should always start by funding your retirement account, especially if you have an employee match (that’s like free money!). 

Your retirement savings account will ensure you’re not destitute as a senior. It will give you the financial freedom to live your golden years in peace.

But too many of us neglect it, because retirement seems so far off. 

I promise it will sneak up on you, and the sooner you start saving for it, the better off you will be. Future You will thank you for prioritizing retirement. 

Emergency Savings Account

Nearly 40% of all Americans can’t cover a $400 emergency. 

Don’t be one of them. 

Part of paying yourself first is squirreling money away for the unexpected. You never know when the dryer will decide to stop working, the cat will get sick, the kid will break an arm, or the car will break down. 

But just because you don’t know when they will happen, that doesn’t mean you shouldn’t prepare. 

Your first priority after retirement should be saving money in an emergency fund. Experts recommend having at least $1000 at the ready, but the amount you need depends on your life. If you don’t own a house or car, have no kids, and are generally healthy, you might need a little less. If you have all those things, you will probably need more. 

Saving Towards Top Financial Goal

I get it, saving for emergencies and retirement isn’t exactly sexy. 

But you also pay yourself first to achieve the fun goals. 

What’s your top financial priority? Pay yourself by saving for it. Name your account “dream vacation” or “sports car” so you know what you’re saving for every time you put money in. 

Once you reach your goal, you’ll be able to afford whatever it is you wanted. 

Investing for the Future

Saving money takes forever. Sometimes, it’s better to invest it to achieve your goals. 

Whether you save or invest the money depends on your specific goal and the timeframe. Typically, any money you want to use within the next five years should be in a savings account to avoid potential market distributions, while money needed for long term goals can be invested. 

If you have goals like buying a home in the next ten years or early retirement, consider paying yourself first with a non-retirement brokerage account. Invest the money in index funds so it will grow over time. 

Index funds are also the perfect way to pay yourself first if you aren’t sure what you want. Your money will grow while you figure it out. 

Why Not ALL of Them?

 I pay myself first using the triangle approach. 

That is, I have a few goals, and I fund all of them based on what’s most important. My triangle includes investing for early retirement, paying off debt, and building my savings account. 

Right now, paying the debt is most important to me, so I put the majority of my “paycheck” to myself towards debt repayment, but I also make sure I put a little bit towards the other goals too. 

The best part is you get to decide how to pay yourself and where your money will go. 

How Do I Pay Myself First with No Money?

Unfortunately, some folks barely make enough to cover their expenses, much less pay themselves first. Understandably, people living paycheck to paycheck can’t put money into savings. 

How can you put money into savings when you can’t even afford to eat?

Consider your options before saying it’s impossible. You might be able to find new ways to save or make extra money. 

Find Ways to Save

Don’t tell me you can’t save money if you don’t go over your budget with a fine-tooth comb. 

Most people have a little fat they can trim. Sometimes, we aren’t fully aware of where all our money goes and are surprised to find small ways we can cut back.

Perhaps you can save a few bucks on your weekly dinner out by opting for cheaper restaurants or eating an appetizer as a meal. You could cut the expense altogether by eating at home. 

You can save money on groceries by cutting sugary drinks off your list or choosing generic items. Save even more by canceling the gym membership you rarely use, swapping to cold water washes, or switching insurance providers. 

If your budget is absolutely bare-bones, consider using coupons and cash-back apps on necessary purchases to find extra money. 

Make Extra Money

Sometimes there really isn’t enough money to go around. You need to earn more. 

Can you pick up extra shifts at work or start a side hustle? Drive for Uber, walk some dogs, or pick up odd jobs here and there to fill in the gaps. 

You could also focus on self-improvement, improving your skills to become more marketable in your industry. That way, you will be ready to apply for a better job with higher earning potential. 

Use a Coach

A lot of times, we get stuck in cycles of endless spending and debt because we have a troubled relationship with money. 

A financial coach can help. 

Financial coaches can help you identify your biggest money pitfalls and create an action plan to improve. 

Coach Yourself

Coaches cost a lot of money, and when you’re already struggling to pay the bills, it seems silly to spend more on expensive coaches. 

The good news is you don’t need to hire an expensive coach to fix your relationship with money. You can do it yourself!

We created a DIY financial coaching bundle designed to help you understand your relationship with money, identify your financial goals, and make positive changes to align your spending with the things you really want. 

You can grab it from our shop for less than the cost of one coaching session! You can also get it on Etsy if you’d prefer, for five bucks more. 

Isn’t your future self worth that investment?

Your Future You Will Thank You

The point is, there’s always something you can do. You’re in control of your life. 

So do something that Future You will thank you for. 

Find the money to pay yourself first. 

Aren’t you worth it?