aying yourself first is a personal finance term that means to take care of one’s self before anything else. This includes saving money and paying bills. It also refers to prioritizing your needs and wants and focusing on what is important to you. Put another way, it means living within your means and not spending more than you actually have.
Paying yourself first is an important step in managing your money wisely because without saving any of your earnings or putting them towards other financial goals such as retirement, the future doesn’t seem as bright. We often put our own needs last, but if we don’t prioritize ourselves, we risk doing nothing for our future selves.
Why you should pay yourself first
There are several reasons why you should pay yourself first. The most obvious is to save for a rainy day or for retirement. Sometimes, emergencies happen and if you don’t have any money saved up, then you will be in trouble. Other times, unexpected expenses come up such as a car repair or a home repair that is necessary but not urgent. If you don’t have any money saved up, then the unexpected expense can put an immediate strain on your finances and may cause you to miss payments on other bills (like rent or utilities).
Another reason why paying yourself first is important is because it helps establish good spending habits. By paying yourself first, you are essentially training yourself to live within your means and not spend every dollar that comes your way.
The final reason why you should pay yourself first is that it helps you become wealthy. If you don’t save and invest money, then it will be virtually impossible to reach financial independence or early retirement.
How to pay yourself first
If you want to start paying yourself first, then there are a few things that you can do depending on your situation. Some people recommend creating a separate savings account just for this purpose. Others recommend putting the money in a high-interest checking account so that it is still accessible in case of an emergency. Another option is to put the money into a Roth IRA or 401k if your employer offers either of those options (and if you meet the requirements). Finally, some people recommend putting the money in a taxable investment account.
The general rule, however, is that you should only put money into a tax-advantaged account if you are already saving in an emergency fund and have enough cash flow to cover your living expenses. Otherwise, it might make more sense to keep the money in a separate saving account that is easy to access.
The bottom line is that paying yourself first is probably one of the most important habits that you can develop if you want to be financially successful.
How to take care of your needs and wants
Most of us have a basic idea of what our needs are and what we want. However, how do you know what you need versus what you want? The easiest way to figure out the difference is to look at your financial situation. Do you need a lot more money than you have? Do your bills exceed your earnings? If so, then paying yourself first might help solve some of these problems.
Take a look at your budget. What can you cut back to save money? How much do you spend on unnecessary items such as eating out? Can you cut back on these expenses so that you can put more money into savings?
There are lots of ways to take care of your needs and wants. Here are some basic practices.
Pay yourself first. If you have bills that exceed your earnings, start paying yourself first. This could be in the form of a 401k or IRA, or it could be in the form of a savings account in which you deposit a certain amount every month. Whatever method works for you is fine, as long as it gets the job done.
Prioritize your needs versus your wants. If you are having problems paying your bills, you probably don’t have the money to spend on unnecessary items. You need to focus on getting your bills paid first before you start spending money on things that will just make you feel better about yourself.
Get rid of the high-interest debt first. If you have a bunch of credit card debt, it’s best to get rid of this debt before trying to save money. Try using the snowball method with your high-interest debts. This will help you get rid of these debts much quicker so that you can start saving for other things in life such as retirement or a new car.
How paying yourself first can help the future
Paying yourself first is a great way to build your future because you’ll be investing in your future self. By saving for retirement or other financial goals, you’re setting yourself up for a brighter future. And it’s easier to save when you do so automatically, so make sure that your employer is taking money out of each paycheck and putting it into savings. You can also set up automatic transfers from your checking account to savings or investments on a regular basis as well. As you build your savings, it will be easier to reach your financial goals and have a more secure future.
Paying yourself first is also important because it’s a way to practice self-discipline. Saving for retirement or other financial goals takes hard work and dedication, and if you’re trying to build your savings but can’t resist the impulse buys or other temptations, paying yourself first is a great way to stay on track with your money goals. If you’ve already paid yourself in the form of savings, then there won’t be anything left over at the end of the month for impulsive purchases that may not be in line with your long-term financial goals.
Paying yourself first has been proven time and time again to be a successful money management strategy, and it’s a great way to start putting your financial priorities in line.
Reasons why people don’t pay themselves first
1. Lack of knowledge. People don’t know how to save their money or they don’t have time to do so.
2. Fear of not having enough money for other expenses. People are scared that if they save, then they won’t have enough money for other things in life such as bills and rent.
3. Lack of discipline to save money every month consistently like clockwork.
Final Thoughts on What Does it Mean to Pay Yourself First?
When it comes to saving, most people are constantly trying to figure out how they can pay themselves last. This is understandable considering the costs of living constantly rise and the idea of sacrificing more than you already do feels challenging. However, there is another option for you! Paying yourself first actually means that your needs come first. It is very important for the future of your life to take care of yourself now. If you don’t, then you won’t be able to provide for your family or enjoy life later on. Paying yourself first doesn’t always mean spending money; it’s about prioritizing your needs and wants in order to better prepare for retirement and other future goals. A great way to pay yourself first is by setting aside some money each month with an automatic deposit into a savings or investment account. You’ll be surprised at how quickly this habit will grow into a significant nest egg.
Do you want to learn more about building wealth? Check out these Best Books on Wealth Building.
James is the editor-in-chief at biggerinvesting.com. James is a workaholic and an entrepreneur who has been in the tech industry for over ten years. He has worked with Microsoft, owns multiple websites, and now owns a mattress shop. Furthermore, when he has time left over, he will be in his woodworking shop building furniture as a side hustle. James has a B.S. in Business Management Information Systems and a Master’s in Business Administration from Liberty University. He is currently pursuing a Master’s in Executive Leadership, and once he completes that, he will pursue his Ph.D. in Business Administration – Entrepreneurship. James also seeks investment opportunities, putting his money to work instead of himself.