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Pay Yourself First: How to Prioritize Your Goals

Paying yourself first is a fundamental principle of personal finance that involves prioritizing your savings before allocating funds to other expenses.

Pay yourself first. I’m sure you’ve heard and read this many times before. And it’s often repeated because most people don’t pay themselves first.

Many of us understand the concept of saving money in theory yet struggle to put it into practice. We often make excuses, waiting for the perfect moment to start saving. “I’ll start saving once I get a higher-paying job,” we say. Or “I’ll save when I get that pay raise.” However, the truth is that these financial milestones often come and go, and we still find ourselves making excuses.

This doesn’t make you a bad person; it simply highlights a broader societal issue. Our culture tends to prioritize consumerism and instant gratification over long-term financial security. However, personal finance’s golden rule reminds us to “pay yourself first.”

What Does “Pay Yourself First” Mean?

The concept of paying yourself first is simple but powerful. Before paying bills or indulging in discretionary spending, allocate a portion of your income to savings. Treat yourself as a priority rather than an afterthought. Consistent contributions will add up over time, even if it’s just a small amount.

Why Do We Fail at Saving Money?

One of the primary reasons we struggle to save money is because we often live beyond our means. As our income increases, so does our spending, a phenomenon known as lifestyle inflation. We find ourselves trapped in a cycle of spending, unable to break free to save for the future.

If you’re spending at the same pace as your income, you’ll never find the extra dollars to save or invest.

I remember when I was making $35,000 a year and told myself if I made $50,000 a year, I’d be able to save. Well, guess what happened when I got the $50,000 salary? I upgraded to a new car.

There’s nothing wrong with spending your money. You work hard to earn money to spend it, not store it indefinitely. However, mindlessly spending can impact your ability to achieve financial goals.

It’s important that you become proactive in saving money today, regardless of how much you’re making. Saving $5 right now can change the trajectory of your financial life, especially if you’ve never saved before. Because doing so shifts your money mindset.

Making the Shift: Think of Yourself as a Bill

To overcome this challenge, consider reframing your mindset. Think of yourself as a bill that must be paid each month, just like your rent or utilities.

Paying yourself first involves setting aside money towards your financial goals, whether an emergency fund, a rainy day fund, or a future purchase.

Paying yourself first satisfies an emotional need.

Saving money for future needs and wants can give you a sense of comfort and security. The more you save, you’ll realize the more you want to save.

Instead of feeling good after spending money, you’ll feel great seeing your savings accounts grow. Now, the truth is you earn money to spend it, and saving money is another way of spending, but later in time.

I save for emergencies, vacations, and various “wants.” In my mind, I’m making these purchases and the savings accounts show my progress in owning it.

Starting small and staying consistent leads to better savings habits.

Don’t let the “experts” tell you saving $1 isn’t enough. It’s a big step for someone who hasn’t saved a day in their life.

A few years ago, I was at an event in North Carolina, where I gave a talk on saving money. Afterward, an attendee approached me and stated she had never saved money in her life. She wanted to save but didn’t know how much she could afford to save. I suggested saving $5 per paycheck.

Months later, she emailed happily, stating how she saved over $1,000.

Today, she has over $3,000 in savings accounts, certificates, and a money market with her credit union. She has also started a car fund to purchase a used card in 3 years.

Paying herself first and starting small has helped her progress towards financial security.


Paying Yourself First: How to Get Started

Paying yourself first is a fundamental principle of personal finance that involves prioritizing your savings before allocating funds to other expenses. By automating your savings and treating it like a non-negotiable expense, you ensure that you consistently set aside money for your financial goals.

Here are steps you can take to pay yourself first.

1. Set Clear Financial Goals

Before you can pay yourself first, it’s essential to identify your financial goals. Whether you’re saving for an emergency fund, retirement, a vacation, or a down payment on a house, having clear goals will help you determine how much you need to save and how often.

Financial GoalDescription
Emergency FundSave $10,000 in an emergency fund within the next 12 months to cover unexpected expenses such as medical bills, car repairs, or job loss.
Retirement SavingsContribute 15% of monthly income to a retirement account to build a nest egg for retirement.
Vacation FundSave $3,000 for a vacation to Hawaii in two years.
Down PaymentSave $30,000 for a down payment on a house within the next five years.

2. Determine Your Savings Target

Once you’ve established your financial goals, calculate how much you need to save each month to reach them. Break down your goals into manageable increments to make them more achievable.

Financial GoalTotal Amount NeededTimeframeMonthly Savings Target
Emergency Fund$10,00012 months$833.33
Retirement Savings$500,00030 years$1,388.89
Vacation Fund$3,00024 months$125.00
Down Payment$30,00060 months$500.00

3. Establish a Separate Savings Account

Consider opening a separate savings account dedicated to your financial goals. This will help you track your progress and prevent you from dipping into your savings for non-essential expenses. Name the savings accounts accordingly to help you see your goals.

Financial GoalSavings Account NameInitial DepositMonthly ContributionPurpose
Emergency FundEmergency Savings$500$200Cover unexpected expenses
Retirement SavingsRetirement Fund$1,000$500Build a nest egg for retirement
Vacation FundVacation Savings$100$150Save for a dream vacation
Down PaymentHome Purchase Fund$1,000$300Save for a down payment on a house

4. Automate Your Savings

Set up automatic transfers from your checking account to your savings account on payday. Treat your savings contribution like any other bill that needs to be paid each month. By automating your savings, you remove the temptation to spend the money elsewhere and ensure that you consistently set aside money for your goals.

ActionDescription
Contact BankReach out to your financial institution to set up automatic transfers. Provide necessary details such as account numbers and transfer instructions.
Specify FrequencyDetermine how often you want transfers to occur (e.g., weekly, bi-weekly, monthly) based on your financial situation and savings goals.
Determine Transfer AmountDecide on the amount to transfer each time. This could be a fixed amount or a percentage of your paycheck, depending on your budget and savings objectives.
Set Up Automatic TransfersReview the details provided by the bank and confirm the automatic transfer setup. Ensure accuracy in the transfer frequency, amount, and designated accounts.

5. Start Small and Increase Over Time

Don’t be discouraged by the size of your initial savings contributions. Starting small and staying consistent is key to building better savings habits over time. Even saving just a few dollars per paycheck can make a significant difference in the long run. You can gradually increase it over time as your income grows.

  • Generate Extra Income: Explore opportunities to earn extra money, such as selling unused items or offering your skills and services to others. Find ways to increase income.

6. Adjust Your Budget

Review your budget regularly to identify areas where you can cut back on expenses and redirect the savings toward your financial goals.

  • Reduce Monthly Debt Payments: Reach out to creditors to negotiate repayment plans or consider consolidating high-interest debt to lower your monthly payments.
  • Cut Subscription Costs: Evaluate your subscription services and consider canceling or downgrading unnecessary ones.

Find ways to reduce your fixed expenses to free up more money for savings.

7. Stay Committed, Monitor, and Celebrate

Paying yourself first requires discipline and commitment.

  • Avoid the temptation to dip into your savings for non-essential expenses.
  • Review your savings goals regularly and track your progress.
  • Celebrate milestones along the way to stay motivated and reinforce positive financial habits.

8. Stay Flexible

Life is unpredictable, and financial circumstances may change over time. Stay flexible and be willing to adjust your savings plan as needed to accommodate changes in income, expenses, or priorities.

By following these steps and prioritizing paying yourself first, you can build a secure financial future.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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