investing

Pay yourself first

“Paying yourself first” is a fundamental personal finance strategy. It means that before you pay your monthly expenses, or make any discretionary purchases, you first set aside a portion of your income for your personal savings or investments. Here’s what this concept typically involves:

Prioritizing Savings and Investments: As soon as you receive your income (be it a salary, wage, or other earnings), a predetermined amount is immediately directed into your savings account, retirement account, emergency fund, or investment portfolio. This is done before you spend money on any other expenses or luxuries.
Building Financial Security: By paying yourself first, you prioritize your future financial well-being. This approach helps in building a financial cushion for emergencies, saving for future goals (like buying a house or retirement), and potentially growing wealth through investments.
Automating the Process: To effectively implement this strategy, many people set up automatic transfers from their checking account to a savings or investment account. This automation ensures that the savings occur regularly and without the need to remember to transfer funds each pay period.
Budgeting Around Savings: Instead of saving what is left after spending, you spend what is left after saving. This mindset shift helps you adjust your budget to live within or below your means, making savings a priority rather than an afterthought.
Encouraging Financial Discipline: Paying yourself first can instill a sense of financial discipline. It encourages you to make do with less disposable income, which can lead to smarter spending decisions.
Compounding Benefits: Over time, the money you save or invest can grow, especially if you invest it. The earlier and more consistently you save, the more you can benefit from compound interest or investment returns.

It’s important to determine an amount or percentage of your income that is realistic for you to save. This depends on your income, fixed expenses, and financial goals. The key is consistency and making sure that your savings or investment contributions are in line with what you can afford.