Pay Yourself First

Pay yourself first summary: 

• Pay yourself first means making savings your top priority, rather than leaving them for whatever money you have left after paying bills. 

• The idea of paying yourself first could help you save an emergency fund or find money to invest for the future. 

• Automating savings contributions can make it easier to pay yourself first. 

Pay yourself first definition and meaning

Pay yourself first means prioritizing saving over everything else. Sometimes it’s called reverse budgeting. Instead of waiting to move money from checking to savings (or a retirement account) until after the bills are covered, you turn savings contributions into a must-pay expense and put the cash in your savings as soon as you get paid. 

Many people cover bills and expenses first and then struggle to find money to save. Pay yourself first reverses this pattern by making saving a top priority. When you set aside money for your future before handling other expenses, you could build consistency, reduce stress, and give yourself the security of knowing you’re moving closer to your goals.

Key concept: A way to reorder your spending/saving priorities so you contribute money to your savings or retirement account as soon as you get paid, instead of after paying all your bills. 

More on pay yourself first

Pay yourself first could be simple to accomplish if you consistently earn enough money to cover all your bills and have some left over. Adopting this strategy could help you prioritize savings contributions—and remember to make them. 

If you struggle with the latter, the secret could be automating it. Log into your bank’s website or mobile app and find the option to automate money transfers on payday from your checking account to a savings or investment account that you control, like an IRA. 

With automation, you won’t have a chance to spend the money before it leaves your account and lands in savings. This could be especially effective if your savings account isn’t at the same bank as your checking—out of sight can often mean out of mind. 

You don’t have to automate your contributions to pay yourself first. If you manually pay your other bills every month, try adding “Savings Contributions” as a line item in your budget and manually move the money when you pay rent/your mortgage, utility bills, and other regular expenses. 

Pay yourself first: a comprehensive breakdown

Paying yourself first could be the personal finance cornerstone that helps you achieve money goals like these. 

Build an emergency fund

A solid emergency fund, consisting of three to six months of expenses, could be your lifeline if you lose your job or have a big unplanned bill (like a home repair). Paying yourself first could help you build one. Even small savings contributions could mount up into an emergency fund, so don’t be discouraged if you don’t have much money left over every month. 

Save for retirement

For a comfortable retirement, you’ll generally need to save and invest while you’re still working. You can pay yourself first in retirement savings by regularly transferring money from your checking to a retirement account you control (like an IRA) or a taxable brokerage account and then using it to buy stocks and other investments. 

If you participate in an employer-sponsored retirement plan, like a 401(k), you’re already paying yourself first. Your contributions are taken out of your pay automatically before it even hits your bank account. 

Make a big purchase

If you want to buy a house, pay for a dream vacation, or cover a college education, paying yourself first means prioritizing it. You’ll get to watch the money increase over time, moving you closer to the goal.