Pay yourself first: What it means and how to do it

By the time monthly bills and everyday expenses are paid for, it can be hard to find extra money for savings. That’s where the “pay yourself first” method comes in handy. This budgeting strategy encourages setting aside money for things like retirement, savings and debt before paying for other variable expenses.

As part of a purposeful approach to budgeting, building savings and investments by paying yourself first is a way to stay focused on long-term financial well-being. Keep reading to learn more about how this method works.

Key takeaways

  • Generally, “pay yourself first” means what it says—set aside money for savings before paying bills and making other purchases. But it’s still important to keep up with debt obligations. 
  • Automatic transfers can make it easier to pay yourself first.
  • Paying yourself first is one way to find room for investing and to prioritize saving for emergencies, retirement and major purchases.

What does it mean to pay yourself first?

Paying yourself first is a personal finance strategy that prioritizes saving and helps limit spending. It’s common to automatically route income to a designated savings or investment account before paying bills and making other purchases.

Essentially, you pay yourself first before figuring out what to do with the rest of your income. But it’s still important to keep up with debts and other bills. Falling behind on those could ultimately result in damage to credit and extra expenses in the form of interest charges and fees.

Why is it important to pay yourself first?

The pay-yourself-first method is a creative way to save money. It prioritizes saving as a mandatory expense—like rent, utilities and groceries. While it can be tempting to skip savings contributions or only save what’s left at the end of every month, doing so may not help accomplish financial goals.

The pay-yourself-first method helps set aside money that can be used for things like an emergency fund, college tuition, a debt repayment, a down payment on a home or retirement.

How to pay yourself first

It’s possible to pay yourself first with the following steps:

  1. Establish how much money to save—as a set dollar amount or a percentage of every paycheck—and what to save for.
  2. Consider setting up an automatic transfer for some of each paycheck to go directly into a savings account, retirement account, investment or other savings vehicle.
  3. Create a budget based on what funds will be available after paying yourself first. Monthly expenses and spending can be managed while still tucking money away.

Here are some common savings goals you might consider if you’re paying yourself first:


While three-fourths of Americans have retirement savings, only 40% think their savings are on track, according to the Federal Reserve. Paying yourself first through a retirement account can help build that post-career income.

You might consider whether you’re eligible for work retirement plans, such as a 401(k) or a 457(b). If you’re not, a traditional IRA or a Roth IRA might be options. And those looking to retire early could consider additional ways to save.

Emergency fund

An emergency fund is meant to cover unexpected expenses like car repairs, medical bills or loss of income. The Consumer Financial Protection Bureau (CFPB) suggests keeping funds in “one of the safest places to put your money”—a bank or credit union.

An automatic transfer could help grow an emergency fund to reach a set goal. Some employers might offer a direct deposit option that can disperse paychecks into multiple accounts.

Saving for a major purchase

If there’s a vacation, a car, a mortgage, college tuition or another big purchase on the horizon, it might take time to save up for funding that purchase. The CFPB recommends setting a goal amount and then breaking it into steps—like saving $100 a month in gas by biking instead of driving or saving $50 a week by not buying takeout.

One of these steps could also be paying yourself first by putting a certain amount into a savings account every paycheck. By saving just $20 a week, that account could collect over $1,000 in a year.

Pay yourself first in a nutshell

Paying yourself first can be a helpful strategy for folks looking to save more and spend less. Automatically transferring a portion of your income each month into a retirement, savings or other account could help you reach your financial goals.

If you’re looking for even more ways to save, check out these tips to jump-start your savings. A cash back credit card might also help you get the most out of your money while saving for the future and building your financial well-being.

Related Content