Allston Brighton Community Development Corporation

Working together, building community

By: Meghan Monson, Homeownership Programs Coordinator 

You may have heard the phrase “pay yourself first,” and if you’re like me, you might have been a little confused by it. “Pay yourself first” doesn’t mean give yourself some money to spend before you do anything else. Let’s explore what this phrase really means and the ways you can apply it to your life.

When people you talk to or articles you read tell you to pay yourself first, what they actually mean is to pay your future self first. Paying your future self is also known as saving, because when you save, you choose not to spend money now, but perhaps spend it later (in the future!). Therefore, “pay yourself first” is a new way of saying “save some money,” but the former is more specific about the way in which it wants you to save money. The phrase suggests you save money before you do anything else. What else could you do with your money? You might choose to spend it on things you want or need, right now. Ultimately, “pay yourself first” means that you pay your future-self before you pay your current-self. Before anyone would logically choose not to spend their money right now, which is more gratifying for most, they must become aware of the importance of saving.

The reason that the phrase “pay yourself first” even exists is because savings is important for everyone. Everyone has experienced and will continue to experience unexpected situations in life, because hey, much of life is unexpected! Most of those unexpected situations will require money. For example, say your car breaks down but both you and your partner need it to get to work. Public transportation is not a reasonable option for you because of where you live, and there’s no way you’re paying for a private ride to and from work every day. The only option is to get the car fixed, which will cost money. If you have some money saved up, it might still be painful to spend the money to get the car fixed, but certainly not as painful as losing two jobs. The thing about unexpected situations is that if you don’t prepare for them, they can often cause downward spirals. First the car breaks down, and with no money to repair it and no way to get to work, then wages disappear, then there’s not enough money to pay for regular bills and expenses (including the rent), then… you get the idea.

If you’re feeling hopeless at this point, let me remind you that the way to prevent the downward spiral is by regularly saving money. And about the timing of your regular saving, doing it “first”? That’s important too. By putting money in savings first, you make saving your priority. You are declaring that the ability for your future self to defend against the downward spiral is more important than the gratification you get from buying something right now. When you pay yourself first, you lock in that money for the future before you can spend it now. For this to work well, two things must be done.

The first thing you can do to make paying yourself first work well is to have a separate account for your savings. There are so many different types of savings accounts, but if you’re just getting started, a regular savings account at the same bank you already bank with will work fine. The most important thing here is that your savings account is separate from your regular operating account, so that you don’t often see the money in savings.

The second thing you can do to make paying yourself first work is to make it automatic. Making the decision to save can be difficult, especially if you are doing it regularly. If you take the difficult decision out of the situation and make saving automatic, it can become much easier to save regularly. Ways that you can do this are to set up a recurring direct deposit from an employer to a savings account, or to set up a recurring automatic transfer from a checking account to a savings account. However you choose to do it, the act of putting money into your savings account before you spend it on bills or fun is paying yourself first. Congratulations!

Speaking of bills and fun, “pay yourself first” doesn’t mean don’t pay your bills, nor does it mean you can never spend money right now. It simply means save, and do it first. Your budget will tell you how much you can comfortably save each month. And if your budget says that there’s nothing left over to save, it’s time to start making some spending cuts. Because remember, your savings is your life’s security. Your life’s security is worth so much more than anything you could buy right now.

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