Pay Yourself First

Reviewed by Apoorva | Updated on Nov 11, 2021



Pay yourself first is a popular phrase in personal finance and retirement-planning literature. It is also an investor mentality that means automatically routing a specified savings contribution from each paycheck at the time it is received.

The savings contributions are automatically routed from each paycheck to your savings or investment account, that is you are paying yourself first. In other words, you are paying yourself before paying the monthly expenses and making discretionary purchases.

What is Pay Yourself First?

Many personal finance professionals and retirement planners endorse the pay yourself first scheme to be a very effective way to make sure that you continue making your chosen savings contributions month after month. It removes the temptation to skip a contribution and spend the funds on expenses other than savings.

Consistent contributions towards savings go a long way toward building long-term wealth, and some financial professionals even go so far as to call "pay yourself first" the golden rule of personal finance.

If you are using the pay yourself first method of personal finance, you can choose to put your money in a range of savings tools, depending on your financial objectives. You can earmark a certain percentage of your paycheck to be contributed to voluntary provident fund or any other retirement benefits scheme for that matter.

Why Pay Yourself First is Important?

The advantage of paying yourself first out of your paycheck is that you build up wealth to secure your future and create a cushion for financial emergencies, such as car break down, financial crisis, or unexpected medical expenses. Without savings, many people experience a lot of stress.

People usually claim that they do not earn enough money to save and fear that if they start saving, they may not have enough money to cover living expenses. Financial advisors recommend measures, such as downsizing to reduce bills to free up some money for savings. It is also important to know that money set aside for retirement is accessible if needed.

Related Terms

Recent Terms