How Paying Yourself First Can Help You Save More Money

Here's how and why you need to start paying yourself first.

According to a Gallup poll, nearly two thirds of Americans prefer saving money over spending it. But that doesn’t mean Americans are always successful at saving.

Most people exhaust all their monthly income on fixed expenses — rent or a mortgage, utilities and car payments, to name a few — and then groceries, gas and other necessary expenses. You might promise yourself you’ll deposit whatever is left over into your savings account, but the problem is that there’s nothing left over because you spent it all during the month.

You can’t end the problem of having no savings unless you treat your savings like a regular expense that must be paid monthly; one of the best techniques to save money is to pay yourself before you pay for anything else. Here’s how you can pay yourself first, and why it’s so important to do it.

Read: 10 Best Savings Accounts of 2016

How to Pay Yourself First

Each time you receive a paycheck, your savings is the first expense you should take care of. The easiest way to pay yourself first is to set up a regular automatic transfer from the account where your paycheck is deposited to your savings account. A simple, automated process like this enables you to save money without having to remind yourself to transfer the funds.

How much you should pay yourself first depends on your budget. Here’s how to estimate how much you can save:

  • Calculate the monthly amount of your net income, which is the amount you receive on payday after taxes, health insurance and other items are deducted. Subtract your fixed expenses like rent or mortgage payments, regular but variable expenses like utilities, and the average amount you spend on food, clothing, transportation, medical expenses and other costs.
  • If you end up with zero or a negative number, you need to immediately focus on reducing non-essential expenses.
  • If you end up with a positive number, that’s the amount of your discretionary income, which includes the amount you have available to save.

Aim for saving ten percent of the take-home amount of your paycheck. If that seems too ambitious, start with a lower amount and gradually increase it over time. If you make small adjustments, you probably won’t feel the pain of saving more money.

Even if your budget is stretched to its limits, you can still afford to put away a small amount of your income into your savings account on each payday — even if it’s only $20. After a few months, increase your savings to $25 per paycheck. After a year, you’ll notice that you’ve stashed away a tidy sum of cash.

When you get a raise at work, make sure you increase the amount of your savings. Ten percent of a bigger paycheck means you save more. In fact, when you get a raise or a bonus, it’s an opportunity to increase the percentage or amount you’ve been saving.

However, keep in mind that paying yourself first doesn’t mean that you can abandon your other financial obligations; the plan will backfire if you pay your other bills late or fall behind in credit card payments. Instead, paying yourself first means that you make your savings expense one of your top priorities.

Why You Should Pay Yourself First

It’s important to make regular savings deposits without diverting the money for other purposes. Building a savings account is critical for a couple reasons.

First of all, you need an emergency fund. Unfortunately, most people will have unexpected expenses due to job loss, injury or illness, death of a partner, divorce, expensive home or car repairs, or one of the many other curveballs that life pitches at us without warning.

According to a March 2015 report by the Pew Charitable Trusts, nearly 60 percent of adults polled experienced some type of “financial shock” and more than half of those in that group said their setback made it harder to make ends meet. If you automate your savings, your savings account will help you pay for these unexpected expenses without making you to go into debt.

Second, to motivate you to stick with your saving regime, you need to have financial goals. Perhaps you want to buy a house or car. Maybe you want to save for a vacation without charging the expenses to your credit card and increasing your debt. Paying for your children’s college education or saving money for your own retirement might seem like long-range goals, but it’s never too early to start.

Get into the habit of paying yourself first. You’ll be proud of the amount of cash you can painlessly accumulate without doing any extra work, and have more security knowing that an unexpected expense won’t put you in the red.

  • Allie G.

    It’ so important to save money and pay your bills off, otherwise you’ll just get into the habit of living just within your means, rather than below your means.

  • Candace

    I started off saving $25. Little by little it grew to over $1000.00
    My peace of mind and security can not be measured.

  • big b

    think about this have some fun every day life is too be enjoyed.

  • Ryan

    I’m putting about 30% of my income into stocks and 401k at the moment, so I think I am doing okay :).

    • Bob Clarkson

      I’d suggest you start putting money in a savings account until you have at least six months of living expenses available without worrying about stock transaction fee’s.

      After you reach two months expenses, transfer one months expenses to to a 90 day CD for higher interest.

  • jane

    impossiable to sve everything is to expensive

    • dudly

      Dudly, when l was working we had a 401k. Each week I had a mlnlum of $10 dollars taken out for my 401k. It only lessended my take home pay approximately $1.50 to $2.00 each week. This 401k deduction is done before any taxes are taken out of your check. The company you work for (that offers a 401k plan)has to put a certain amount in your account., each payday, whether you do or not. And in my account l joined before 1986, this meant that l was ,(what north carolina plan calls),, baily vested. Which means when l took out my monies that l did not have to pay any state taxes on my 401k, only federal taxes. This was a good way for me to save up some extra money. Sad to say l had to delete my account due to disabilty. The good news was, I had aged past 59 years, therefore l did not have to pay an early withdrawl fee. I thought it would hard to save, but after I started it got easier. So this might just help someone to know. You could also borrow from your own account, at a cheaper rate. And when you pay monthly, weekly, , or bi-weekly on the loan you’re paying it back into your own account. Try it could work for you.

  • Pay yourself first and last!. When I was employed, 10% of my paycheck went into my 401K. Anything left over at the end of the month went into my Roth.

  • Sandy

    My paycheck average $30 a WEEK saving is NOT an option for everyone as this article implies.

    • Bob Clarkson

      $30/week has to be a part time job. Basic necessities (food, clothing housing) can’t even be covered. That would indicare that those things are covered by someone else. If you break your incopme down to savings, bills and fun, you can easily invest a dollar a week on yourself. That is basically less than your pocket change.

      YOU are the single most important thing in your life. YOU are the one most vested in your life. Invest in yourself first.

      Remember also it isn’t just paycheck money to consider. If you get money for you birthday or holidays, put 10% of that money into invesring in your life.

      If you think you can save just a little, you’ll be able to start saving. If you think you can’t save, you’ll be right also. Except you won’t have any means to help cushion yourself during an emergency.

      I once had to use my savings to pay the majority of my bills for three months after the company I worked for was bought by another company. That company eliminated ALL “Redundant”jobs and Training Managers are almost always among the first to go and the last to be hired – unless a company has reached a ” mature state” and realizes the money spent on competant trainers translates into “hard” dollars going to the bottom line.

      Look for that $1 a week. If you’re a minor, most banks offer free savings accounts with limited withdrawals.

  • Ibsyboy

    Europeans work to live. Americans live to work.

    • Richard Heade

      Says who ???

      • Okijarhead

        exactly. I work to live, and have never been to Europe.

  • Lauren

    Some of the best financial advice I have ever received: No credit cards. No credit. Don’t do it.
    If you don’t have the money in the bank, you shouldn’t buy the item. Treat your debit card like cash. You only have as much money as is in your bank account. I put 10% of every check into savings and my husband and I put all the change in our pockets into a 5 gallon jug before we got to bed. It’s half full. Every little bit helps. A raindrop can become a river in time.

  • Connie hooks

    Try to my 17yearsold teen.

  • Pick the Wick

    My wife and I don’t find it easy to save money. We’re on a fixed income, but we don’t have any loans and own our home and two vehicles outright.
    All the same, we find it easy to budget for bills. We keep track of the money we have on hand, and maintain a steady balance in a savings account. There is always some money left over at the end of the month.
    Compared with those who owe money to various people and financial institutions, we consider ourselves blessed.

    To paraphrase what Dicken’s Mr Micawber said:

    “Monthly income $1000, monthly expenditure $1999.50, result happiness.
    Monthly income $1000, monthly expenditure $1000.50, result misery.”

    • Pick the Wick

      Oops. Of course..
      “Monthly income $1000, monthly expenditure $999.50, result happiness.
      Monthly income $1000, monthly expenditure $1000.50, result misery.”

  • Just a Guy

    My retirement plan is the death of my parents. How lucky I am to be born into upper-middle-class America.

    • Just a Smart Guy

      Bitch is you drunk?

    • Richard Heade

      But, you might be a lower-middle-class American, I hope you treated your Parents well in life, what happens if they don’t leave you a bean ???

    • Okijarhead

      What a d*ck

  • Christina Lavingia

    I do this every month too. On the first, just as rent is due, I transfer $500 to my savings account religiously. It’s helped in times when unexpected costs came up, providing me with a lot more financial security plus a higher interest rate.

  • Matthew

    typical Procrustean bed model that we are to conform ourselves too. while we are bombarded with messages everyday telling us how important we are as consumers in keeping the economy growing. which way would you have us be–engines of the economy as debt-laden consumers, or tightwad savers that don’t know how to live in the moment, always thinking of our future selves? we’re wealthy enough as a society not to force people to make these choices…

  • Richard Heade

    ”This means that each time you get your paycheck, the first thing you do is set aside a portion of your earnings to save before taking care of your bills and other necessities.”

    BUT, the vast majority of us cannot do that every month, these holier than thou attitudes do not help folks in low income groups and I ignore such stupid comments, we aren’t all rich with lots of dosh to squander on the niceties in life, we live hand to mouth every month, if I could afford to save I would, it’s not rocket science, but, if I aint got it I can’t save it, can I ?????????

  • Theda Kirkland

    I never learned how to save and it’s hard when you have needy children asking for money. Plus with what I have been through all my life was people stealing from me. So the way I feel is hurry and spend it before someone I don’t know steals it. I’m speaking in terms of people in authority. Those people you can never sue to get your money back. When they find out you have money they will steal it . I’m so paranoid that I feel if I put a lot of money into the bank they will steal it. Now what do you say about that? I almost feel like digging a hole in a remote place. That even goes for insurance too. I save a lot of money and die they will probably tell my children I had no money. I have not been lucky when it comes to money. It’s like people feel that I shouldn’t have any. The bad part is that I don’t. I would love to save but fear sets in. So I say spend it while you can cause you can’t take it with you and your not guaranteed that your family will profit should any unforeseen death occur. We live in a crooked world and everyone is out to get you one way or another.