Money Smarts

Pay Yourself First: A Personal Finance Golden Rule

Paying yourself first means saving money towards your future purchases each and everyday payday.

Pay yourself first. You’ve probably heard this many times before and wondered what it truly means. Well, here’s the truth…chances are you’ll spend what you earn before you save anything for a future purchase or expense.

And if you don’t have money saved to afford what you need, you’re most likely stressing about your finances until the next payday or relying on credit.

I’ve repeated the phrase “pay yourself first” many times. It’s important that you become proactive in saving money today regardless of how much you’re making. Saving $5 right now can change the trajectory of your financial life, especially, if you’ve never saved a day in your life.

As much as spending is a habit and something we may often do unconsciously, saving is a habit too that must be formed and nurtured. Paying yourself first is a way to create healthy savings habits.

Why are you not saving money right now?

Many people will say they don’t have extra cash to save. They’ll begin saving once they get a higher paying job, or get that raise, or once the bonus arrives. Well, hate to break it to you, but when these financial moments arrive, chances are the money has already been spent. Not a single penny would have been deposited into a savings accounts.

This doesn’t make you a bad person. Not saving money just highlights an issue we have in our society that pushes consumerism and instant gratification over long-term satisfaction.

The golden rule of personal finance is to pay yourself first. The concept seems simple enough but in practice, many people fail at it. I’ve certainly failed at paying myself first until I saw the advantages of doing so.

Why do we fail at saving money? It’s because we’re living well beyond our means and no matter how much our income grows we’re all susceptible to lifestyle inflation.

Living beyond your means is simply spending more than you make. If your income after taxes is $2000 per month and you’re spending $2500 per month on rent, utilities, car payments, and student loans, then you’re living way beyond your means. You’re in a $500 deficit. And you’re probably relying on credit to cover the difference. In this situation, you’d need to make drastic cuts to your living such as getting a cheaper apartment.

On the other hand, lifestyle inflation, just sorts of happens. When I say “sorts of” it means you’re unaware of your growing desire for more expensive things as your income grows. This is also detrimental to your financial wellbeing. If you’re spending at the same pace as your income, then you’ll never find the extra dollars to save or invest.

Remember, when you were making $30,000 a year and told yourself if you were making $50,000 a year, then you would be able to save? What happened when you reached the $50,000 annual salary? Chances are you got a bigger apartment, a better car, ate out more, and bought luxury brands. There’s nothing wrong with that unless you’re trying to achieve financial independence.




It’s your choice to save and an important one to put into motion.

Again, you’ve heard this rule restated countless times by experts and bloggers. It can also be confusing to understand. Here’s a simple definition: paying yourself first means thinking of yourself as a bill that must be paid each month.

It’s a Jedi-mind trick to get you into saving money. You already know how important it is to pay your bills on time, so you don’t get the electricity cut or get hit with late payment fees. Paying yourself first is setting aside money towards your financial goals. These goals can be for an emergency fund, rainy day fund, or for a future purchase.


A few years ago, I was doing an event in North Carolina about saving money. An attendee approached me afterward and stated she has never saved money. She wanted to save but didn’t know how much she could. I suggested starting at $5.

Months later, she emailed stating how she saved over $1,000. Today, she has over $3,000 saved in a mix of savings accounts, certificates, and a money market with her credit union. She has also started a car fund to purchase a used card in the next 3 years.


Paying yourself first satisfies an emotional need. When you realize you have nothing left in your checking account after paying your bills, you’re stressed and feel hopelessness. Saving money for future needs and wants can give you a sense of comfort. Basically, you have (some) money and that’s a good feeling to have.

The more you save you’ll realize the more you want to save. Instead of feeling good after spending money, you’ll feel great seeing your savings accounts grow. Now, the truth is you earn money to spend it, and saving money is just another way of spending, but later in time.


I save for emergencies, vacations, a future home and various “wants.” In my mind, I’m making these purchases and the savings accounts show my progress in achieving these goals. It keeps me motivated to limit my expenses and find ways to make more money to put into those savings goals (future purchases).

When you pay yourself first you understand the value of your time and money.

How do you pay yourself first? Here are my tips.


1. Direct deposit your paycheck and have automatic transfers into a savings accounts. You can open separate savings accounts and auto-transfer money each pay period into these accounts. Make sure you label the accounts for their intended savings goals (e.g. emergency, car, travel, etc).

Contact your bank or credit union to set up your savings transfers. Consider alternative banking like Chime that offers spend and save accounts with no account minimums or fees. You can read my review of Chime and if you open an account using our link and set your direct deposit, you’ll get $10.

2. Enroll with your employer’s 401k. Start with the max percentage your employer matches. If you’re not taking advantage of your employer’s 401-k plan, then you’re leaving money on the table. This option helps you work towards your retirement goals.

3. Open a savings account with another financial institution. You can have a savings account with your primary bank, but you can also consider having a separate savings account elsewhere. There are many options to choose from. If you find it hard to save because the money is too tempting, open an account with a local credit union or try banking apps like Qapital, Rize or Digit. Read my list of the best savings and investing apps.

And this is how you can find extra money to start paying yourself first.

Reduce your monthly debt payments. Reach out to your creditors for repayment plans and options to reduce your monthly bill. Consider a debt consolidation loan for your credit card balances. This will help free extra cash that can be used to pay yourself first.

Eliminate and reduce subscription service costs. Reduce the money you pay towards services that you do not take full advantage of. This may mean getting rid of Netflix or lowering your cellular plan. Speak to your utility companies and service providers about ways to reduce your monthly bill. Use the extra money towards your savings goals.

Make extra cash. There are many ways to earn extra money by selling your used stuff or offering your skills to others. I live listed over three dozen ways to earn money in my latest article. You can also earn money completing online surveys and doing secret shops at retail stores.

Now, it’s time for you to pay yourself first, so you can freely spend on the things you want and need in the future.

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Jason Vitug

Jason Vitug is founder at phroogal, creator of the award-winning project the Road to Financial Wellness, and author of the bestseller and NY Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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  1. When I first heard the phrase “pay yourself first,” I didn’t really get it. (“Pay myself for WHAT, exactly?”) Once I realized that I didn’t necessarily need a goal for saving money — that saving could be a goal in and of itself — I actually understood “pay yourself first.” And I started doing it!

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