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We often call it ‘saving money’. But if you actually want to do that, it might be more helpful to think of it as ‘paying yourself first’.
Paying yourself first is a budgeting technique that helps you prepare for the future, and helps keep you financially healthy in the long run. Rather than sacrificing that security for spending that only offers instant gratification or short-lived enjoyment.
In this article, we’ll discuss how to pay yourself first, as well as the topics below:
- What Is “Paying Yourself First”?
- Why Is It Important To Pay yourself First?
- How Can You Pay Yourself First?
What is “Paying Yourself First”?
Paying yourself first means taking a portion of your paycheck and putting it aside before spending the money on anything else. Ideally, you’d put it in a savings or investment account, so it can grow, but building up an emergency fund or paying off debts are also wise decisions.
Create a Financial Strategy
To pay yourself first, make a deposit into a savings or investment account immediately after you get your paycheck. That way, you won’t even have the choice to spend that money elsewhere, even if you have the temptation.
Even if you can only afford to put aside a small amount, due to your essential expenses, your savings will build up over time, and you’ll be better off. Every little bit counts!
In fact, summing up all your necessary expenses in a simple budget tracker, like rent, groceries, car payments, an emergency fund, debts, and anything else, is a good way to determine how much you have available to pay yourself first.
You’ll want to set aside as much as is reasonably possible to, but also to leave yourself a little wiggle room for unforeseen expenses that are bound to pop up. You also want to leave some room for you to enjoy your life!
An effective way to keep your expenses in line is to use a budgeting app. The HyperJar app, for example, lets you divide money in different virtual Jars, which you can label for expenses like ‘Groceries’, ‘Rent’, ‘Tuition’, or anything else you like. Then you can spend from each Jar directly with the HyperJar debit card. It makes it much easier to stick to your budget than doing that all ‘manually’.
Set a Goal
Once you’ve set your target amount to pay yourself first, set up an automatic — or ideally, recurring — transfer to a savings or investment account.
Then transfer the rest to a budgeting app like HyperJar to make everything that much easier.
Why is It Important To Pay Yourself First?
It’s important to pay yourself first because it helps you secure your financial stability in the future, so you can live the retirement you want.
It also helps you make sure that if some kind of financial emergency comes to pass, like needing unexpected home repairs, or suffering a sudden loss of income, you’l be protected.
1. It Builds up Your Savings
Paying yourself helps you build up your savings, steadily, month by month. No matter how much you’re able to put away, in the long run it will leave you that much better off. And it’s never too late to start.
2. You Stay Motivated and Focused
Paying yourself first also improves your financial discipline, and helps you stay motivated and focused on spending money wisely.
3. It Avoids OverSpending
Needless to say, paying yourself first also helps you avoid overspending, and living paycheck to paycheck.
4. You Avoid Debt
In addition, paying yourself first helps you avoid sliding into debt, which can become a vicious cycle that really endangers your financial health in the future.
When you pay yourself first, you make sure that you’re prioritising your, and your loved ones’, long-term health and wellbeing.
How Can You Pay Yourself First?
Technology makes it easy to pay yourself first, and organise the rest of your finances accordingly.
1. Direct Deposit
To pay yourself first, go to your online banking or app and set up a transfer to a savings or investment account. If you can schedule a recurring transfer, that’s even better.
Then transfer the rest of the money to a budgeting app like HyperJar, to help make sure you keep the rest of your spending in line with your goals.
2. Set Up A Savings Account
If you don’t already have a savings account, it’s relatively easy to open one with the bank you currently use. Paying yourself first to a savings account is much better than putting the money in a current account, because it will grow over time.
Conclusion
Paying yourself first might take a little extra discipline in the beginning, and might even seem like an ‘unfair’ sacrifice. But as your savings grow, and your future becomes more secure, you’ll feel better about yourself and glad that you started sooner rather than later.
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