If you’re living paycheck to paycheck, building wealth or simply setting aside money for the future can feel daunting. Even the idea of creating a budget might make you feel like you are having to sacrifice too much in the short term in order to hopefully reap the benefits down the road.
But in reality, budgeting is all about creating more opportunity for yourself, not less; more money in the bank equals more financial freedom. By using your budget to “pay yourself first,” you can start building real wealth through saving and investing.
The Problem of “I Can’t Afford to Save”
The “pay yourself first” budgeting method is a direct response to the common argument that people don’t make enough money to save. If monthly spending eats up all of your income, it is hard to put funds toward building wealth.
If that sounds like you, see if there are ways you can trim some of your spending and carve out some savings opportunities—even on a small scale. It comes down to setting your personal priorities: If you put spending over saving, you’re going to find yourself with limited savings opportunities.
That’s where the “pay yourself first” method comes into play.
What It Means to “Pay Yourself First”
It’s all too easy to put savings on the back burner. The “pay yourself first” method turns this around and makes saving and investing a top priority so that you’re taking care of future you.
In essence, what you’re doing is making sure your income is helping fund your savings and investing accounts before that money gets spent on other things—even other necessities. Saving becomes the first and most important financial action you take.
What does “paying yourself first” include? Essentially, any savings or retirement vehicle you’re prioritizing at the moment. This could include your emergency fund, savings goals, credit card debt, retirement accounts, health savings account, or college savings plan.
Under this budgeting method, these funds are no longer optional—they’re treated the same as any bill. And when you incur new bills, you take the logical next step: You adjust your spending to account for those bills.
Committing to Positive Spending Changes
When you pay yourself first, the rest of your spending needs to adapt. You can adjust your budget by calculating new spending limits based on the income you are now working with.
In some cases, you may have to make tough decisions and make significant changes to your spending habits. Maybe you need to cut back significantly on going out to eat. Or maybe you would rather maintain your dining habits and cut way back on entertainment expenses or vacations.
Creating a budget that includes paying yourself first is a great way to ensure that you are continually making progress toward your long-term financial goals.
The Accountability of Auto-Pay
Adopting this budgeting method can be difficult for consumers who doubt that they can afford it or even doubt their own ability to stick to a tighter budget. Accountability is important. So is actually making the payments that force this plan into action.
If you’re struggling to stick to the script or afraid you might cave under pressure, you can keep yourself accountable by setting up automatic payments and transfers to the accounts where you’re looking to save. Set up regular transfers after every paycheck or on a monthly basis to your emergency fund, savings account, retirement fund, and/or any other funds where you’re implementing the “pay yourself first” method.
This creates a structure for saving that, if you stick to it, will become a regular part of your financial rhythms—eventually, your brain will write these automatic payments off as bills, making it easier to stick to the plan.
If you’re looking for ways to become a more efficient money manager, this method of building wealth can help force some of the changes you need to embrace when it comes to following a spending budget. Paying yourself first is a long-term strategy that will help you build savings and wealth faster than ever before.