The strategy to “pay yourself first” is among the most powerful of any in personal finance.
Pay yourself first means that you make reaching your financial goals your top priority each time you are paid and before you start paying any other bills. Right after you are paid, you make sure that you transfer the proper amount of money toward your savings accounts, IRA, or taxable investment accounts. If your top financial goal is to aggressively pay down debt, that would be your first action as well. This should happen first thing before you pay your rent, put gas in your car, buy food, or do anything else.
The rationale behind pay yourself first is that if you leave meeting your financial goals until last each month, you will never achieve them. Your money will disappear into the ether as you are paying your bills and going about your life. You will tell yourself that next month will be different because xyz won’t happen again, but every month plays out the same way.
The best way to pay yourself first is through automatic, scheduled transfers. After you set those up, you won’t have to use your memory or willpower at all to pay yourself first. It will just go on in the background, and pretty soon you won’t even miss the money.
Resolve to pay yourself first from this month forward!
(No one is advocating that you fail to pay any of your other bills. If paying yourself first causes a shortfall that you cannot allow, transfer the money back from your savings to cover it. This is a budgeting issue, not an issue with the strategy itself.)
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[…] your net worth is to make saving, investing, and/or paying down debt regular and automatic (pay yourself first). Don’t only use frugality or a side income to free up cash flow that is then lost to the […]