How to Pay Yourself First
Money Management Feb 24, 2021
Paying yourself first helps you create a long-term healthy financial habit of prioritizing saving over spending. The trick is to save immediately you get paid rather than save what’s left at the end of the month. By doing this, you’re putting money away to invest in a happier, healthier future.
If you struggle with having money to spend at the end of the month, or you realize you’re living from paycheck to paycheck or you struggle with saving monthly, then this post is for you. The solution is simply to pay yourself first. Besides that, it saves you a great deal of stress and ensures the future you can handle other unexpected issues. The best way to get ahead financially is to save. Follow these steps to reach your future goals:
1. Add up your monthly income
Before paying yourself first, you need to figure out how much to pay yourself. Sum up your monthly cash inflow net of taxes. This first step ensures every income source contributes towards your financial goals.
2. Estimate your saving percentage
Decide how much to pay yourself based on your leftover amount each month. Define your short and long-term goals and decide how much from your cash inflow you can afford to direct towards them. You should always have a mapped-out contribution plan for repaying debt, saving, investing, or any other financial goal you have for the year.
3. Budget your expenses
Have a plan to spend. Your budget should tell you where the rest of your money should go. Prioritize needs over wants and ensure you always include variable expenses in your budget to avoid having to borrow. Subtract monthly income from expenses to know how much money is leftover.
4. Pay yourself first
Stash away the decided portion of your paycheck in accounts that earn you interest. Your savings should always be separated from your expense account. Automate the process by scheduling a recurring transfer so you can grow your savings and investments without much effort.
5. Pay bills, then spend
After you’ve paid yourself, prioritize paying your bills and necessary living expenses. This process will help keep your spending on track each month. In the best-case scenario, you’ll have money left over to save.
Do not save what is left after spending; instead spend what is left after saving.
― Warren Buffett