What does “pay yourself first” mean?

Certain phrases just seem to get adult heads nodding. “Can you believe what’s going on down there?” or, “We better get going if we’re gonna stay ahead of the weather,” and of course, “You have to pay yourself first.”

Everyone bobs along. “Mmm-hm.” But what does that even mean?

Save for your future self

When people say “pay yourself first,” they really mean your future self. In other words, save money. When you get paid, set aside money for your savings right away, before the rest gets spent. The idea is that you can save a lot more in the long run. If you wait until your paycheck is nearly gone, you’ll have less money to put aside after all those other expenses.

How to pay yourself first

The easiest way to prioritize saving for your future self is to automate payments. The classic example is a 401(k) plan offered by many employers. Money goes directly from your paycheck into your retirement account, bypassing checking and other cash accounts. You can’t spend it, but you can invest it for the future.

Even if you don’t have a job with benefits, as long as you have income you can set money aside every time you get paid. Putting those funds into a specific account, like a high-yield savings account or a retirement account (Roth IRA, for example) is a good way to keep them separate from your day-to-day expenses. Your future self says thank you.

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I could always save money when I needed to, by simply hoarding it in my checking account. It took me many years to come around to a savings account. When the average annual percentage yield (APY) amounted to mere decimal points, I just couldn’t be bothered. With rates rising to 4% or more in the past few months, I finally took the leap. I admit it does make me feel better to have money stashed in a separate place. I never touch it and the balance only ever goes up. That certainly feels like progress.

Photo by Nathan Bingle on Unsplash