Updated: Jan 18
Paying yourself first is a financial strategy that involves setting aside money for savings and investments before paying any other expenses. The idea behind this strategy is that by making saving and investing a priority, you will be more likely to achieve your financial goals and build wealth over time.
One of the key benefits of paying yourself first is that it helps you to establish a regular savings habit. By making saving a regular part of your budget, you are more likely to stick to it and save consistently over time. Additionally, by setting aside money for savings and investments before paying other expenses, you are less likely to spend the money on non-essential items.
Another benefit of paying yourself first is that it allows you to take advantage of compound interest. When you save and invest money, it has the opportunity to grow over time. This growth is driven by compound interest, which is the interest earned on the original investment as well as any interest earned on previous interest. The earlier you start saving and investing, the more time your money has to grow and the more you will benefit from compound interest.
To implement the strategy of paying yourself first, you can start by setting a specific savings goal, such as saving for a down payment on a house or for retirement. Next, determine how much money you need to save each month to reach your goal, and make sure to set aside this money before paying any other expenses.
Another way is to automatically transfer a certain percentage of your income to a savings or investment account each month. This can be done through your employer or through your bank, and it helps ensure that you are consistently saving money each month. You can try opening more than one bank account for short term goals so that your money is easily tracked. You may also use permanent cash value life insurance as a supplemental savings tool to provide more tax benefits and other types of value for your hard earned dollars.
Pro tip: Feel welcome to ditch the debit card for your emergency fund account. If you know you are a spender, make it harder to access your rainy day fund.
It is important to remember that paying yourself first does not mean neglecting other expenses such as bills and necessities. Rather, it means putting you first by making saving and investing a priority so that you can achieve your financial goals and build wealth over time.
Overall, paying yourself first is a simple yet effective strategy for building wealth over time. By making saving and investing a priority and consistently setting aside money for these purposes, you can achieve your financial goals and secure your financial future.
Be sure to look out for our follow up post on the tools you can use to Pay Yourself First.
Thanks for reading!
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