To "pay yourself first" means to set aside a portion of your income for savings or investments before you use any of it for paying bills or discretionary spending. This strategy involves prioritizing saving by automatically allocating money to savings accounts, retirement funds, or investments right when you get your paycheck, rather than saving whatever is left over at the end of the month. It is a budgeting approach that ensures savings are a priority, helping build emergency funds, prepare for retirement, and secure long-term financial goals before spending on other things.
Key Points about Paying Yourself First
- It is about automating saving or making saving a fixed priority before any other expenses.
- It helps prevent the common problem of spending first and saving only leftovers, which often results in little or no savings.
- The method is sometimes called "reverse budgeting," focusing on saving goals rather than expenses.
- Experts suggest aiming to save about 10-20% of income using this strategy.
- It builds financial discipline and protects against emergencies and unexpected expenses.
- Savings can be directed to emergency funds, retirement accounts, or investment vehicles.
- The savings habit formed by this approach supports long-term wealth and financial security.
This practice is fundamental in personal finance as it ensures that financial security and goals are funded before other spending happens, promoting better money management and future readiness.
