Pay Yourself First. But How?

Paying yourself first is a smart strategy that can help you maintain your financial health. This method sets you up for success by automatically boosting your savings. Here’s what you should know about paying yourself first.

Review Your Budget

The first thing to do when paying yourself first is to:

1. Look at your budget.
2. See where you can reduce spending.
3. Once you have identified some areas, set them aside to be used in savings.

How to Autosave

Now look at how much you can autosave each month. One typical rule of thumb is to set aside about 10 percent of your monthly take-home pay to be deposited into your savings. Also, make a goal of setting aside any “windfall money,” like a tax return or work bonus.

Pay Yourself

The reason why paying yourself can work is because each paycheck automatically “pays” you before anything else. You will automatically be stepping up your savings. It also removes the temptation to spend that money.

Make a Plan

Once you’ve identified some extra funds to save, create an autopay strategy. You can ask your employer to split your direct deposit into your savings accounts. Another way to do it is to set up auto transfers with your bank or credit union. This way, a certain amount of money each paycheck is out of sight, out of mind. Most banks or credit unions make this process quite easy. 

Do One Thing: Set up auto transfers so that you are paying yourself first every paycheck.