Always pay yourself first.


Because it’s one of the most important principles of building wealth.

You see, many individuals earn an income that empowers them to build wealth, yet they constantly feel strapped for cash without saving a dime.

The reason they feel this way isn’t because the amount of money they make doesn’t support saving—it’s because they neglect this principle; rather than paying themselves first, they pay themselves last.

With such a powerful principle at play, let’s dive into what it means to pay yourself first.

What Does it Mean to Pay Yourself First?

To pay yourself first means that you put money into specific savings accounts before you start spending on monthly expenses.

This is important because if you pay yourself last, it means that you don’t have a plan for your money and you end up spending it on things that pop up throughout the month. Then, at the end of the month, you save whatever is left.

The thing is, if you’re spending your money like this, there’s a good chance that there is little to no money left over at the end of the month to sock away.

How do you Pay Yourself First?

To pay yourself first, follow these six steps:

Step 1: Analyze Your Spending

Take a look at how you spend your money each month and break it down into categories. For example, what amount of money do you typically spend on things like:

  • Living Expenses
  • Food
  • Transportation
  • Entertainment
  • Clothing
  • Education
  • Etc.

Next, figure out what a reasonable budget is for these main categories in your life and place that dollar amount next to each category.

Step 2: Determine Your Savings Goals

Create a list of your long-term and short-term savings goals. Are you striving to save for a downpayment on a House Hack? Or perhaps you’re trying to max out your Roth IRA contributions? Maybe you just want a larger emergency fund or nest egg.

Regardless of what you’re saving for, the only way you’re going to get there is if you consistently add money to the account. To do this in a timely fashion, take the amount of money you want to save and divide it by the total number of months you have to save.

For example, the maximum contribution you can make to your Roth IRA each year if you are under 50 years old and qualify for a Roth is $6,000. This means you have 12 months to save $6,000.

$6,000 / 12 = $500/mo

Now you know you need to save $500/mo (or $250 per bi-weekly paycheck if you have a full-time job) to maximize your Roth IRA.

Do this for all of your savings goals. At the end of this step, you should have something that looks like this:

Roth IRA: $500/mo

Hose Down Payment: $700/mo

Emergency Fund: $150/mo

Total: $1,000/mo

Step 3: Reconcile Your Monthly Budget and Savings Goals

Now that you know exactly how much you want to be saving each month, it’s time to go back to your monthly budget that you created in Step 1 and start making some tradeoffs.

First, take your monthly income, and subtract the amount you have budgeted for in all of your categories. Whatever remains is the first amount that you can use for your savings goals.

However, now you’re at zero, and likely still have some savings goals to account for. This is where you need to decide what is more important in your life and what you want to invest in.

Let’s say that you currently spend $400 on entertainment every month, but you need to save $150 for your emergency fund each month. Can you cut $150 from your entertainment budget to contribute towards your emergency fund? Are there more affordable or free ways to entertain yourself or your family each month? If so, make the cut from the entertainment budget. If not, look for another category or group of categories that you can trim to come up with that $150 for your emergency fund.

As you go through this exercise, take the time to evaluate what you value and prioritize in your life. Money can often be a reflection of our habits and priorities, so this is a great opportunity to ensure you’re spending your money in alignment with your values.

If you are in a situation where you have trimmed down your budget as much as you can and don’t have the income to meet your savings goals, it’s time to look at your job. Can you earn a promotion in your current position? Can you switch companies or jobs and earn more? Is there something you can do on the side to close that gap with additional income? These are all things to consider at this stage.

Step 4: Write Out Your Monthly Budget and Savings Amounts

Now that you have your monthly saving and spending amounts established, write them all down in a list. Put your monthly income on the top line, followed by your saving amounts (pay yourself first!), and then your expenses. It should look something like this:

Monthly Income: $4,000

Roth IRA: $500

Hose Down Payment: $700

Emergency Fund: $150

Rent: $1,000

Food: $600

Phone: $75

Utilities: $150

Transportation: $150

Internet: $75

Clothing: $200

Entertainment: $200

Discretionary: $200

Remainder = $0


Step 5: Automate (If Applicable)

Paying yourself first is the most valuable lesson of this article; automating it is the second.

If you work a full-time job and receive consistent paychecks, the best thing you can do is automate where your money goes.

This will look different depending on your employer, your bank, and the other accounts you work with on a regular basis. As a result, please use the following examples as inspiration and food for thought as to how you can automate paying yourself first.

The idea is that when you receive a paycheck, the money you want to save is automatically pulled out before you have a chance to spend it on things that aren’t a priority to you. If you don’t have a plan for your money, then you will likely end up spending it all without any savings or investments to show for it. Automating this takes the self-control and discipline out of it entirely which will make you more likely to stick with it.

With my employer, I’m able to split my paycheck by dollar amount into certain accounts. With my bank, I’m able to easily create new savings accounts and checking accounts. Therefore, I set up a savings account for my real estate savings and a separate one for my travel savings; the funds in these accounts will sit around for a longer period of time and earn a higher yield compared to my checking account.

When I receive a paycheck, my employer automatically deducts the pre-tax deductions that participate in (e.g. 401(k), FSA, HSA, etc.). After the pre-tax deductions have been removed, my take home pay is automatically distributed (with an allocation that I set) to my savings accounts. After the savings accounts are distributed, the remainder of my paycheck automatically goes to my checking account to serve as “traffic control” for everything else. My Roth IRA automatically pulls from my checking account each month, as do all of my bill payments.

It looks like this:

Pay Yourself First

Take time to determine what you can do with your current employer and bank empower you to do. If you find your capabilities are limited by your bank, consider shifting to Capital One 360 or another bank that provides more flexibility so that you can automate your finances the way you want. While it may take time and effort to switch banks, if you take advantage of the new capabilities to pay yourself first, it will be well worth it.

Step 6: Adjust as needed

After you set up your budget and automation, monitor it closely for the first handful of months. If you notice that you’re not fully utilizing all of the money you budgeted for something discretionary like entertainment, cut that budget back and dedicate that extra money to one of your other savings goals. If you notice that you’re hard-pressed for something essential like food, see where else you can reduce from to compensate.

As you adjust your budget, try to protect your savings goals as best you can.

Yes, this may cause you to reduce another area of your spending more than you’re used to, but it will be worth it in the long haul. And, again, this is an opportunity to examine your values in life and what you want to invest in with your dollars. If you are running into an issue where you have trimmed all you can and still don’t meet your savings goals, then it is time to consider a job or occupation change to earn a higher salary.

Why Paying Yourself First is Effective

This might seem like a lot of effort to go through in order to save, and the thing you may be wondering is, “Is the juice worth the squeeze?”

I don’t know your unique situation, so I can’t give a blanket statement. But my guess is yes.


Because when you establish your savings goals, automate them, and place them in different accounts, you’ve officially set up a plan for your money where every dollar has a job. When every dollar has a job, it is more likely to do what you want it to do (read: create wealth).

In the example above, you’re able to save $500/mo to max out your Roth IRA and $700/mo for a home fund. With this, you are investing $6,000 a year into an account that can grow tax free and $8,400 a year into an account that after just 3 years can be the downpayment on a $450,000 house with today’s interest rates.

In the case of purchasing a house at this rate, is 3 years a long time? Sure. Is 5 years a long time if that’s what it takes? Sure. Is 7 years a long time if that’s what it takes? Sure. However, all of these options are a lot faster than if you were just hoping to buy a house one day without having a plan for your money where you pay yourself first.

I hope this article has served as a guide to help you apply this important wealth building principle to your life. As you work to implement it in your life, remember that your finances are your finances, and your wealth building journey should be tailored to you and your life values.