PERSONAL FINANCE
How To Start Paying Yourself First
There’s a good reason this advice endures. Here’s how to act on it.
You’ve been told to pay yourself first. Your parents, some personal-finance paperback, or…ahem…some guy on the internet.
That’s nothing novel.
But it can be harder to make it happen when the rubber meets the road.
Having started married life with tens of thousands in debt, then rapidly climbed out and built a healthy nest egg, I’ve felt firsthand the difficulty and the power of setting aside money even when times are tight.
Below is what I found helpful.
I’m not a financial professional. This is purely opinion and entertainment, not advice. Do what’s right for you, and if in doubt about what that is, then it’s important to find someone who’s legally able to tell you.
Why bother?
The point, I hope, is self-evident.
If you save or invest spare money before you have a chance to spend it, then, well, you won’t spend it. It’ll sit and compound in your favor.
We all agree on the math.
But the math isn’t the whole story. It’s just a quantitive wrapper around something much more valuable.
Habits are everything
When you pay yourself first, you’re building a key habit that will cultivate discipline and gratitude—not to mention the financial upside.
And this sort of habit is scalable.
The value of prioritizing your financial future over short-term spending never changes. The dollar amounts are just variables you plug in and play with as circumstances change.
Some folks build this habit early, with (presumably) less money at stake. Others put it off, then find themselves struggling to handle larger sums later, and wish they’d built this happen early.
I suggest option one.
Three tactics worth trying
Automate your deposits
It’s horrifyingly easy to neglect saving when a potential purchase promises relief or escape or plain old good times.
Marketers are really good at making those promises, and our own psyches are perhaps even better. It’s no wonder we all go through periods of struggling to save.
If you’re currently short on willpower to actually click “Deposit” of your own accord, that’s OK. It’s not an innate or immediate habit, and you’re not a failure for struggling with it.
But you might need to use automation to circumvent that struggle altogether…at least for a while.
Over time, you’ll watch the auto-deposits chug along. You might even forget about them entirely!
As that happens, it slows gets easier to see that money as destined for savings/investment, as though it were never truly discretionary in the first place.
De-automate your deposits
“Huh? Didn’t he just suggest automating them?”
Correct. Automation has its place. But in principle, I’m not a huge fan of automating one’s finances.
The issue isn’t that dollar amounts change. They’re easy to update. Rather, my qualm is that once you’ve internalized the fact that you can easily do without the amount you’re saving, you’ll benefit from turning that into a deliberate act.
There’s something important about going to the effort of entering that savings deposit or that brokerage account transfer. Not only is it satisfying in its own way, but it’s part of your mental conditioning. It’s almost like an affirmation through action: “I am a prudent person who makes good long-term choices every day.”
A conscientious habit, in other words.
Invest…very, very small
It’s never a bad idea to buy shares of solid companies or index funds that you like and understand. There are no guarantees in investing, but that’s a highly likely way to get a share of the ever-growing asset pie.
But many of those robust and reputable assets cost hundreds of dollar per share. A few are well into the thousands.
Does that mean investing has to wait?
Not these days. Every single brokerage I’m aware of supports fractional shares for most stocks.
Consider how powerful that is.
You don’t need to wait for a windfall to buy a company or ETF you believe in. You don’t even need to divert your whole pay-yourself-first budget into the stock market.
You can ease into almost any asset with just a few bucks each month.
It’s a small but steady long-term investment that easily scales with your income and life circumstances.
Again, it’s a habit. And right after your emergency fund, it’s one of the most important financial habits to build.
If you’re looking for magic, you’re in the wrong place. Bank transfers are not rocket science, and the above are nothing proprietary or groundbreaking.
But that’s for the better, since our most powerful practices are usually not the most complicated ones.
And since I started automating my way out of bad habits, de-automating my way into good habits, and steadily buying pieces of a growing pie…progress has taken care of itself.
