What Does “Pay Yourself First” Mean?

Most people have good intentions to save what is left of their income after paying necessary expenses. The problem is that there are many ways to spend your monthly paycheck that can result in not having much money left to save. So what do people mean when they say, “pay yourself first”?

What Do People Mean When They Say Pay Yourself First?

“Pay yourself first” is a popular phrase used in personal finance and retirement planning. When people say, “pay yourself first,” they are simply referring to one of the most effective ways to save: making it a habit to put some money into your savings or investment account at the time it is received, even before you begin paying your monthly living expenses and making discretionary purchases.

In essence, “paying yourself first” is putting a specific plan around saving or investing. Sometimes described as “reverse budgeting,” this ensures that saving or investing is accounted for each month and is a monthly expense paid by you – to the future you. By taking a small step to ensure regular savings contributions, you are practicing consistent savings while also promoting frugality, making your future self a priority.

Why Pay Yourself First?

Remember, “paying yourself first” does not mean you neglect all other financial responsibilities in pursuit of saving or investing, so you will have to still account for non-discretionary expenditures like rent or mortgage payments, utilities expenses, and property taxes.

The main advantage of “paying yourself first” is so that you can secure your financial future and have a cushion for unplanned expenditures when emergencies arise. Regular savings contributions go a long way towards building a financially secure nest egg for future expenses such as retirement.

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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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