Pay yourself first

Don’t save what’s left after spending but spend what’s left after saving. Paying yourself first is the golden rule of personal finance. It’s a budgeting method that makes sure you continuously make your chosen savings month after month. Learn how this money management tip makes saving a non-issue.

How it works

By paying yourself first, you automatically set aside a specified savings amount from each paycheck at the time it is received. Because your savings are instantly taken from your earnings and transferred to your savings or investment account via an automated process, you’re paying yourself first.


I know what you’re thinking right now: This sounds too simple to work. Let me assure you, it’s not. The concept of paying yourself first has its roots in behavioral economics and it has been shown that it can make an enormous difference in the amount of wealth you accumulate for yourself and your family. Here’s why.

Why it works

Let me ask you something: Let’s assume you’re determined to do more exercise. Are you more likely to go through with it if you schedule in your workout first thing in the morning, or last thing in the evening? Obviously, after a long day at work, when you’re tired already and yet need to run some errands, you’re much more tempted to skip the gym. That’s why it makes sense to exercise first and then proceed with your day.


The mechanism is exactly the same when it comes to saving. If you pay for everything else first and then try to save, you’ll often find that there’s nothing left. But if you put away your savings first and then cover your bills, you’ll force yourself to make ends meet.


But I don’t have enough money

That’s what many people tell themselves. Truth is, most of them do. Just like they actually do have time to go to the gym. It’s simply a matter of prioritization. When you start making your savings the most important “bill” to pay, you will succeed at building that emergency or retirement fund, or saving for that car that you’ve been wanting for so long. Maybe that means that you’ll have to compromise in other areas, like your leisure expenses. But, again, if saving really is your priority, it will be worth it.

But I’m not saving for anything in particular

If you don’t have a particular savings goal in mind, try to think of it that way: Paying yourself first really is like buying yourself financial freedom. Each addition to your savings account, each automatic transfer, brings you a few RON closer to an independent life without financial sorrows. And you got to admit – that’s a pretty damn good win for the price of the 2 minutes it takes you to set up a standing order that transfers money from your checking account to your savings account.

To sum up, paying yourself first is an easy and effective method to accumulate savings. It’s usually free to implement and you can start with minimal planning. By removing the temptation to skip a contribution it keeps you from spending that amount on anything else than your savings. Before long, you’ll have an extra load of cash working for you and the goal you want to achieve.