Pay Yourself First

This is a very simple concept, and therefore a very short post!

Pay yourself (save) first, before you have a chance to spend all of your money.  Although it is simple, most people don’t do it.

Prioritizing your savings (before your discretionary expenses) is all it takes to successfully start saving money!  

A few notes:

  • The government is smart – they make your employer withhold tax on your paycheque before you are paid each pay period.  They truly get paid first because they know if they don’t take their cut off the top, there is a good chance it might not be there at the end of the month.
  • Pay essential expenses first.  Obviously you aren’t going to be too interested in saving if you don’t have a roof over your head and food on your table.  That said, it makes sense to fund your essential expenses first, prior to saving.  That said, I don’t view living in a 5,000 square foot house and eating out at expensive restaurants as “essential”.  If you find that your essential expenses are so high that you have nothing left to save, there is a big chance that you’re living beyond your means.  This means that you either need to earn more or spend less (or maybe both!) so you can afford to fund your savings and your discretionary expenses.
  • When you fund your savings, you will want to set a savings percentage that aligns with your lifestyle and financial independence goals.  There is a fine balance between saving too much (and depriving yourself of enjoying the journey to financial independence) and saving too little (and having to work forever). If you haven’t thought about this yet, read through my post on savings rate.
  • Once your savings are covered, don’t feel bad about spending the rest on discretionary expenses – spend guilt-free as long as your spending is aligned with your values.

There is a great quote that illustrates this lesson:

A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much as you can afford. Pay yourself first.
― George S. Clason, The Richest Man in Babylon