The Power of Paying Yourself First

There's a golden rule of personal finance that often gets overlooked: pay yourself first. Even though this practice is relatively simple, it can have a significant impact on financial health.

What Does It Mean To "Pay Yourself First"?

Paying yourself first means allocating funds to saving before putting money towards anything else. Instead of waiting until the end of the month to see if you have anything left to save, you prioritise putting something aside for yourself, even if it's just a few dollars.

This approach may seem counterintuitive since you have to buy groceries, pay your utility bills, and cover your rent or mortgage. However, if you've created a budget, you will have a clear picture of your income and expenses and you will know that you can commit a sum to your savings before you do anything else. You will also know how much you can afford. The benefit of this approach is that you add to your savings before you indulge in non-essential items.

Remember to Strike a Balance

While paying yourself first can help to revolutionise the way you manage your money, you need to make sure you continue to meet your other financial obligations. It can be tempting to direct all your available funds into your savings, but neglecting debt repayment can negatively impact your credit rating and reduce your overall financial wellbeing.

How do you find a good balance? One way to do this is set up automated transfers for your savings.

Why Set Up Automatic Transfers?

When you automate your savings, your bank will transfer a predetermined amount from one account to another on a set schedule. Some banks make this easy via their apps or online banking platforms. You can specify the amount you want to transfer and how often you want to transfer it based on your savings goals. Likewise, if your employer allows you to make multiple deductions, you can arrange to send set amounts from your salary to different accounts each month.

For some people, this is a game-changer, since it ensures they consistently meet their commitments without having to do anything. When life gets busy, you may forget to add to your savings or put off making a loan payment for another day, only to end up spending the money. However, once you set up automatic transfers, you can sit back and relax.

Automatic transfers also eliminate the temptation to spend money impulsively. When we have money sitting in our regular account, we often get the urge to buy something non-essential. However, diverting a portion of your income directly to an account you designate specifically for saving means you're less likely to dip into those funds.

Secure Your Finances by Paying Yourself First

If you want to improve your money management and ensure you have a nest egg for the future, consider paying yourself first. By prioritising saving, you can take control of your financial destiny.