pay yourself first
Moving a set amount to savings automatically on payday, before any spending, instead of saving what is left at the end of the month.
Pay yourself first means moving a set amount to a separate savings account on payday, before any spending, and ideally automatically. Saving becomes a line that is paid like rent, instead of whatever happens to be left at the end of the month, which for most households is nothing.
It works because it changes the order of decisions. When saving comes last, every purchase during the month competes with it and wins. When saving comes first, the rest of the month is planned around what remains, and the flexible spending limit is set after the saving has already moved.
Start small if money is tight: at first the habit matters more than the amount, and the amount can grow when a debt is paid off or an installment plan ends. Keep the savings in a separate account so they aren't spent by accident. If there is expensive debt, such as a credit card balance, compare what it costs in interest with what the savings earn: paying the debt down often does more, while a small automatic saving keeps the habit going.
Example
Sam's family closes its monthly gap with recurring changes worth 7,617 UAH. 6,558 of that covers the gap, and 1,000 moves to a savings account automatically on the 5th, payday, before any other spending. The flexible limit is then set from what remains: 56,000 − 42,935 − 1,000 = 12,065 UAH.
Common mistakes
- Saving what's left. By the end of the month there usually isn't anything.
- Starting too big. A saving that pushes you onto the credit card later in the month isn't saving.
- Keeping it in the spending account. Money that sits next to daily spending gets spent.
- Never raising it. When an installment plan ends, move that payment to saving.
Learn it in the course
- Building it without pain: pay yourself first · Pay yourself first: automatic saving on payday instead of saving what is left, with a fixed sum for a salary and a percentage for irregular income.
- Spending plan: needs, wants and fun money · A spending plan that covers needs, saving and the things that make life good.
- Case: Sam's family lives paycheck to paycheck · Sam's family lives paycheck to paycheck, 6,558 UAH short every month. Find the gap in a month of data, close it with recurring cuts, keep fun money and start saving first.