It means exactly that, pay yourself first. It’s a pretty well known phrase in the business and investing industry and used all the time in personal finance seminars, classes, books, etc. What the heck does it even mean? Do you pay into your savings? Do you pay your bills? Do you go and buy those new jeans?
This 3-word phrase can be misunderstood and manipulated to however you see fit. That’s the problem.
What Does it Mean to Pay Yourself?
Usually this term means you’re setting aside money for the future, or long-term investments or goals. When money comes into your life, typically via a paycheck, your first reaction is to use that money to put out any fires you’ve given yourself in life. That’s ok and is the natural reaction many people would have. What you do after you’ve covered those fires is the important part. Instead of taking the rest of that money and splurging on a new video game, you should consider saving or learning how to buy stock to start investing.
Many people will stop looking long-term and start looking short-term with their money once they fall into a lump sum.
The idea of “paying yourself” is to use the money for long-term goals, typically placed in a savings account.
What Does it Mean to Pay Yourself First?
If you read the above section, it means you pay yourself first. You put aside money for long-term goals before you take care of your bills and other things. This doesn’t mean you stop paying your bills or neglect them in any way.
This just means you leave yourself a smaller pool of cash to pay your bills and have fun. Yup, that means you may not be able to get that $5 coffee every morning before work. This teaches you to be more frugal with your money.
So, Why Does it Matter to You?
The payoff for being frugal and paying yourself first is the long term improvements on your life and always having money saved up for when you need it the most. If you’ve been paying yourself first for awhile you’ll start to see that you can easily cover all of your needs and still build a savings.
Paying yourself first is not meant to make your life more difficult, it’s meant to build better habits with your money. Consider paying yourself first for your bigger goals in life and even more importantly, for your retirement.