What Does it Mean to Pay Yourself First?

The term “pay yourself first” is very popular in the world of personal finances.

According to Investopedia,

“Pay yourself first” is an investor mentality and phrase popular inĀ personal financeĀ and retirement-planning literature that means automatically routing a specified savings contribution from each paycheck at the time it is received.

Because the savings contributions are automatically routed from each paycheck to your savings or investment account, you are “paying yourself first.” In other words, paying yourself before you begin paying your monthly living expenses and making discretionary purchases.”

What ”paying yourself first” is all about

In general, paying yourself first evolves around three key things:

#1. Prioritising your future self and needs before any other spending
#2. Building your monthly budget with the goal to maximise your savings and investments
#3. Allocating money towards savings and investments as soon as you get paid

Ultimately, it means strategising how much money you would need for longer term goals such as a house, emergency fund, retirement etc. and actively saving or investing to achieve them.

These goals become priority for you and you allocate the money to them as soon as you get paid so you don’t end up spending it on other – often unnecessary – things.

We have decided on specific, monthly savings and investments amounts which we automatically deposit to the respective accounts on day 1 after payday. That way, we don’t even see the money and aren’t tempted to spend it.

How do you pay yourself first?

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