Paying yourself first means putting money toward your savings or financial goals before spending money on other things. Instead of paying your bills, spending on everyday expenses and then saving whatever happens to be left over, you save first.
For example, imagine you receive a $4,000 paycheque. Rather than waiting until the end of the month to see what’s left, you might automatically transfer $400 to savings as soon as you’re paid. The remaining $3,600 is what you have available for your other expenses.
The idea isn’t that you literally pay yourself instead of paying your bills. It’s about making savings a priority rather than an afterthought. You might use the strategy to build an emergency fund, save for retirement, pay down debt, build a down payment or work toward another financial goal.
If you’re looking at different ways to manage your money, paying yourself first can work alongside other budgeting strategies. For a broader introduction, see our guide to What’s the Point of a Budget?.
Why is paying yourself first important?
Saving money can be surprisingly difficult when you leave it until the end of the month. By the time everything is paid for, there may not be put left to save – plus there always seems to be another expense that comes up. A dinner out. A car repair. A birthday gift. A subscription renewal. A few online purchases.
Paying yourself first reverses the order.
Instead of saving what’s left after spending, you spend what’s left after saving. That small change can make saving more consistent.
It makes saving automatic
One of the easiest ways to pay yourself first is to automate your savings. You can arrange for money to move from your chequing account to a savings or investment account shortly after your paycheque arrives. Once the transfer is automatic, you don’t have to make the decision every time you’re paid.
It helps turn savings into a habit
Saving $300 once feels good. Saving $300 every month can have a much bigger impact. Paying yourself first creates a routine that can help make saving a normal part of managing your money.
It puts your goals ahead of impulse spending
When your savings happen first, the money available for discretionary spending is smaller. That can make it easier to avoid spending money simply because it’s sitting in your account.
How does paying yourself first work?
The process is relatively simple.
1. Decide what you’re saving for
Start with a specific goal. You may want to build an emergency fund, save for retirement, pay off debt, save for a home, take a vacation, build a general savings cushion, or save for a major purchase. Having a purpose can make it easier to determine how much you want to save.
2. Choose an amount
Decide how much you can realistically set aside each pay period or month. It doesn’t have to be a large amount – if $500 isn’t realistic, perhaps $100 is. The goal is to establish a sustainable habit.
3. Automate the transfer
Set up an automatic transfer to your savings or investment account (like a TFSA) shortly after you get paid. This is one of the most important parts of the strategy. The less effort required, the easier it can be to maintain.
4. Build your budget around what’s left
After you’ve transferred your savings, use the remaining money for housing, food, transportation, bills, discretionary spending and other expenses. This is essentially the reverse of the traditional approach:
Traditional approach: Income → spending → savings
Pay-yourself-first approach: Income → savings → spending
How Much Should You Pay Yourself First?
There’s no universal amount that everyone should save. Your ideal savings rate depends on your income, expenses, debt, financial goals and timeline. Some people use a percentage of their income, while others choose a fixed dollar amount.
For example, you might decide to save:
- $100 every paycheque
- $500 per month
- 10% of your income
- 15% of your income
- A specific amount toward a particular goal
The important thing is to choose an amount that is meaningful but sustainable. Saving an amount that’s too aggressive may force you to rely on credit cards or withdraw the money later. Saving a smaller amount consistently can be more useful than setting an unrealistic target you can’t maintain.
What Are the Benefits of Paying Yourself First?
1. It makes saving easier
When savings happen automatically, you don’t have to rely on willpower every month. The money is moved before you have a chance to spend it.
2. It helps you prioritize long-term goals
Everyday expenses tend to demand attention. Future goals don’t send you bills. Paying yourself first makes those future goals part of your regular financial routine.
3. It can help build an emergency fund
An emergency fund can provide a financial cushion for unexpected expenses or income disruptions. Making automatic contributions can help you build that cushion over time.
Read What’s the point of an emergency fund? to learn more about how an emergency fund works, and how much you should save.
4. It can help you avoid lifestyle inflation
As your income increases, it’s easy for spending to increase along with it. Paying yourself first can help ensure that some of an income increase goes toward savings or investments before it gets absorbed into your lifestyle.
5. It reduces decision fatigue
If you have to decide every month whether you’re going to save, saving can become a negotiation with yourself. An automatic transfer removes much of that decision-making.
6. It creates a sense of progress
Watching your savings balance grow can provide a tangible sense of progress toward a goal. That can make it easier to stay motivated.
Common misconceptions about paying yourself first
Myth #1: Paying yourself first means ignoring your bills
Your essential expenses and financial obligations still need to be paid. The strategy simply means prioritizing savings alongside those obligations rather than treating savings as whatever happens to remain. If your essential expenses consume nearly all of your income, your first priority may be getting your overall budget balanced.
Myth #2: You need a high income to pay yourself first
Not necessarily. The principle can work at almost any income level. Even a small automatic contribution can establish the habit of saving. As your financial situation improves, you can increase the amount.
Myth #3: You have to save 20% of your income
There is no universal percentage required for paying yourself first. You may have heard guidelines recommending certain savings rates, but those are not rules. Your savings amount should reflect your circumstances.
Myth #4: Paying yourself first means you can’t enjoy your money
You can—and should—leave room for spending on things you enjoy. The idea is to save first, not to save everything. Once you’ve made your planned savings contribution, the rest of your money can be used for your regular expenses and discretionary spending.
Myth #5: You have to save cash
“Paying yourself” can mean directing money toward different financial priorities. Depending on your circumstances, that might include savings, investments or additional debt repayment. The important idea is to put money toward improving your financial position before discretionary spending takes over.
What are the drawbacks of paying yourself first?
Paying yourself first can be effective, but it isn’t a substitute for having a realistic budget.
It can create cash-flow problems
If you automatically save too much, you may not have enough money available for your essential expenses. You could end up transferring money back out of savings or relying on credit to cover bills. That’s not the goal.
It can make your budget feel restrictive
If your savings target is too aggressive, you may feel like there’s never enough money available for everyday life. A sustainable plan is generally better than an overly ambitious one.
It doesn’t solve underlying spending problems
Saving first doesn’t automatically fix overspending. If your expenses consistently exceed your income, you may need to reduce expenses, increase income or reconsider your financial priorities.
Your priorities can change
The amount you save and what you’re saving for may need to change over time. That’s normal. Your financial strategy should evolve as your circumstances change.
Frequently Asked Questions
What does “pay yourself first” mean in simple terms?
Paying yourself first means putting money toward savings, investments or other financial goals before spending the rest of your income. It prioritizes saving rather than waiting to see what’s left at the end of the month.
Is paying yourself first a budgeting method?
It can be used as a budgeting strategy. Rather than allocating all your income to expenses first and saving what’s left, you make savings one of your first planned allocations. It can be combined with other budgeting approaches, including zero-based budgeting and the 50/30/20 rule.
How do I pay myself first?
Choose an amount you want to save, then set up an automatic transfer from your chequing account to a savings or investment account shortly after you receive your income. Then build your spending plan around the money that remains.
Should I pay myself first if I have debt?
It depends on the type and cost of the debt and your overall financial situation. You may want to build some emergency savings while also making required debt payments. If you have high-interest debt, putting additional money toward that debt may be an important priority.
Is paying yourself first the same as saving money?
Paying yourself first is a strategy for saving money. The difference is when you save. Instead of saving whatever happens to be left over, you make saving one of your first financial priorities.
What if I can’t afford to pay myself first?
Start small. Even a modest automatic transfer can help you establish the habit. If you genuinely don’t have enough income to cover your essential expenses and save, focus first on creating a sustainable overall budget.
Can I pay myself first for something other than savings?
Yes. You can use the principle for several financial priorities, including retirement contributions, investments, additional debt payments or saving for a specific goal.
Is paying yourself first right for you?
Paying yourself first can be particularly useful if you regularly intend to save but find that there’s nothing left at the end of the month. as it changes the order of your financial priorities. Instead of hoping you’ll save, you make saving happen automatically.
However, it isn’t magic. If your income doesn’t cover your essential expenses, you can’t solve the problem simply by transferring money to savings first. You may need to revisit your budget and look at your income and expenses as a whole. The strategy works best when the amount you save is realistic.
Practical Takeaways
If you want to try paying yourself first, start with these steps:
- Choose a financial goal. Decide what you’re saving or paying down.
- Pick a realistic amount. Start with an amount you can maintain consistently.
- Automate it. Set up a recurring transfer shortly after you get paid.
- Treat savings like a bill. Make it a regular part of your financial plan.
- Budget with what’s left. Use the remaining income for expenses and discretionary spending.
- Start small if necessary. You can increase your savings rate later.
- Increase savings when your income rises. Consider directing some of a raise or bonus toward your goals.
- Review your plan regularly. Adjust your savings amount as your income, expenses and priorities change.
Paying yourself first helps make saving a priority – instead of an afterthought.
When you save whatever is left at the end of the month, there may not be anything left. Paying yourself first flips that approach. You decide how much to save before you start spending, then build your lifestyle around the money that remains.
The strategy doesn’t require a huge income or complicated financial system. It can start with a small automatic transfer that happens every time you’re paid. Over time, those regular contributions can add up—and more importantly, they can turn saving into a habit.