Why You Should Pay Yourself First 1

When you get your paycheck what do you do? For many, it is to pay their rent and bills. Maybe it’s the same for you too. In this case, they are using that money to pay others, but not themselves.

Now, you might be thinking it’s odd to pay yourself. After all, you get paid by your boss unless you’re self-employed. In this post, I’ll be going over what it means to pay yourself and why you should be doing it.

Disclaimer: None of what is mentioned in this post should be considered as financial advice.

What Does Paying Yourself First Mean?

When it comes to personal finance, paying yourself first is one of the common pieces of advice around. Contrary to what the phrase “paying yourself” implies, it has nothing to do with how you earn money. Instead, it is referring to how to save money.

The idea behind paying yourself is that you always put away some money for yourself, usually in a savings (high-yield) or retirement account. You set aside the money before you pay for anything else such as rent, mortgage, or bills. You can think of personal savings as the first bill you need to pay the first of each month. There is no fixed amount you need to pay yourself, just start with a small amount and slowly scale up as you see fit. The important thing is that you start putting aside some money for yourself.

Paying for Your Future Self

You have probably heard of the importance of saving for retirement. Yet you see frequently about statistics showing that people are not saving enough or don’t even know how much they have saved for retirement. To not fall into the group of people that is ill-prepared for the future, you can start by paying yourself.

There are many ways to pay yourself. Here are some ways to help get you started:

• Contribute to your employer’s 401k plan (at least up to the matching)
• Put your money into a high-yield savings account (any that offers 1.7% or more is ideal)
• Put your money into a Roth IRA or a traditional IRA
• Invest the money into something where you’re comfortable with the risk

It’s also very important that you start as early as possible because of the power of compounding. I won’t be talking about compounding in this post, but a simple google search will give you a good idea.

Gives You Peace of Mind

I think many can agree that having peace of mind is a luxury that is worth having. In the case of paying yourself, it gives you peace of mind for your future years. If something bad happens and you lose your income stream(s) you’ll know that you have a cash cushion to fall back on. When you’re approaching retirement, you’ll know that you have an adequate amount of money to live off so you don’t need to continue working.

But I Can’t Keep Up

A common argument against paying yourself is that you can’t keep up with your bills. You think that if you pay yourself first then you’ll run out of money before the end of the month. While that is a valid concern in most cases it will not happen because when you make the commitment, it’ll force you to find ways to pay for the bills. It will require you to re-evaluate your expenses and make cuts to where it is appropriate. Also, you don’t need to take a large amount of money to pay yourself, a small amount is better than nothing.

Do Make Sure It Makes Sense Financially

Despite the benefits of paying yourself first, you do need to make sure it makes sense financially for you. You do need some wiggle room in your expenses or it won’t work. For example, if you’re left with no money after the essential bills then you can’t pay yourself unless you get a higher paying job or a side income. While if you’re buying yourself a few new toys to play with each month, then you can cut back and save some of that money.

I hope this post was helpful to you. If you found this post helpful, share it with others so they can benefit too.

Are you already paying yourself first? If you’re not, what is stopping you from doing so? What are other financial topics you would like to see?

To get in touch, follow me on Twitter, leave a comment, or send me an email at steven@brightdevelopers.com.