Pay Yourself First: What It Means and How to Do It

Natalie Thomas  | 

There are many effective strategies for saving money, but there are far fewer for actually putting it into savings. People often believe that they do not have the money to spare for savings, and that is sometimes true. However, it is often the case that they need to make the space in their budget. Following the “pay yourself first” method is a means of doing this with far-reaching benefits.

What Does Pay Yourself First Mean?

“Pay yourself first” is a fairly self-explanatory maxim; it means that you should put money aside for yourself before spending it on anything else. While this money could be set aside for a variety of purposes, it should be saved for a long-term goal. Such goals include retirement, emergency funds, or even vacation savings.

The pay yourself first method is sometimes referred to as “reverse budgeting.” Although this approach has long been espoused as a beneficial strategy, it is the antithesis of a standard budgeting strategy, which usually entails first paying bills and then using the leftover funds for savings and spending.

It is worth noting that this approach does not work without a solid framework of foundational knowledge and good habits when it comes to budgeting. For someone who already struggles with spending wisely, employing this tactic might prove challenging and may require further preparation.

How to Pay Yourself First

Ideally, the pay yourself first method should help you reserve money for long-term goals without noticing any appreciable loss in your basic living budget. This is best achieved with a consistent, manageable strategy.

Pay Yourself First Strategy

Almost any budget can be divided into three major components for expenses: bills, savings, and casual spending. Most put the bills first in line, but allocating money to savings should be the first order of business. In fact, the most effective technique is to set up an automatic transfer to savings. This will put that money completely out of sight and out of mind.

Ways to Pay Yourself First

To free up funds to “pay yourself first” with, there are numerous options:

  • Start with a small, or even negligible amount to start setting aside. This will ease the transition and build confidence.
  • For those with side gigs, transfer that revenue straight into a savings account.
  • Reduce casual spending. Find the difference between average previous spending and the current, then bank that amount.
  • In the case of live-in partners, save one income and use another for bills and additional spending.
  • Utilize a company retirement plan.

Why Should You Pay Yourself First?

According to one survey, only 15% of Americans have more than $10,000 in savings; 34% have none. This is largely the result of economic distress, but it is likely also the result of a modern deprioritization of the habit of saving. Savings habits have almost disappeared in the face of rising debts such as mortgage payments and school loans.

Contending with severe debt can cause one to feel irresponsible for building a mountain when there is already such a huge hole to fill. However, by neglecting savings, an already difficult financial situation will deteriorate rather than stagnate.

Why Does It Work?

The reason paying yourself first is so helpful is because it is instinctual for most people to prioritize the future last. If unprepared for, future financial ventures and opportunities will pass by as more immediate obligations constantly butt ahead of them in line.

In fact, this mindset likely contributes to poor economic mobility in the United States. Those who have grown up in low-income households not only were often raised paycheck-to-paycheck, but they are less likely to be familiar with responsible spending practices. These factors might make the idea of putting money aside for savings seem like both an unreasonable goal and a careless one.

It is beneficial to pay yourself first. In doing so, you no longer put under the pressure of having to weigh what is the “most important” expense. This method assumes that the future is always important and alleviates guilty budgeting by encouraging you to not consider that money to be part of the budget.

How Should I Spend My Savings?

Obviously, everyone can spend their savings however they want, but some choices may be more economical:

  • Retirement savings are always a great choice. One can never have too much saved for retirement.
  • Another option that one can never go wrong with is an emergency fund. Expensive emergencies will happen. Lost jobs, sick pets, broken bones, and flat tires could pull the rug out from under any of us at any moment. It’s a huge relief to have that nest egg available when such a situation arises.
  • Any long-term goal for personal enrichment or quality of life is excellent. This could be buying a house, going to college, or even going on a vacation.

Setting aside money for these contingencies may be particularly difficult — especially for those people who were raised in low-income circumstances. However, it’s not wasteful. No one should feel guilty for investing in their future. Paying yourself first enables you to do so.


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