12 Steps to Financial Wellness – Step 7: How to Pay Yourself First

man putting hundred dollar bills in breast pocket

Now that you’re managing your money well and you’ve even learned to share the gifts you’ve been given, it’s time to start perfecting the art of saving.

If you have ever watched Parks and Recreation with Amy Poehler, you probably remember all the episodes where Tom and Donna have a “Treat Yo Self” day. Well, paying yourself first is kind of like that but instead of blowing all your money and things you want, you save it. But at the end of the day you will be treating yourself, it will just be down the road a bit and not an immediate ‘treat’.

“Pay yourself first” is a catchphrase that refers to prioritizing your personal savings above other expenses. To achieve it, savings should be a fixed line on your budget that happens every month without fail. I know I have told yall many times before but I have automatic transfers set up every week for savings. Every single week when my husband gets paid money gets transferred to a ‘Christmas account’, ‘long-term savings’, and ‘eating out fund’. When I get paid, I put money in the Christmas savings, eating out savings, and other savings. We have MULTIPLE savings accounts that we ‘pay’ like at least once a month, if not, several times a month.

Here’s how to pay yourself first:

  1. Review your spending
    Take a clear look at your spending. If you already have a budget, this will be as simple as reviewing the column which lists all of your expenses, including your discretionary spending. If you don’t have a budget, track your spending over several months to identify your primary expenses and to find the average amount of money you spend each month. You can also check out these previous blog posts: Step 1: How to Track Your Spending and Step 2: Creating a Budget.
  2. Set short- and long-term saving goals
    Short-term savings, or funds you want to be able to access in the near future if necessary, can be allocated to an emergency fund. Experts advise having three- to six-months’ worth of living expenses set aside in an emergency fund in case of a sudden, large expense and/or loss of employment. Long-term savings should include funds you can afford not to touch for several years or more. Your long-term saving goals can include your retirement, as well as a downpayment on a home, a new car, a sabbatical from work or any other super-big expense. Narrow down your short- and long-term goals, then attach a number to each savings category.
  3. Set a timeline for each savings goal
    Now that you have a number for the amount you want to save, you’ll need to work out a realistic timeline for meeting those goals. It’s best to give first priority to your emergency fund, but at the same time, it’s a good idea to start saving for retirement today so compound interest has an opportunity to work its magic. To that end, you may want to allocate the bulk of your monthly savings to your emergency fund until you meet your goal. Once your emergency fund is full, you can divide your savings more evenly between your short-term savings and long-term savings.
  4. Calculate how much you’ll need to save each month
    Take your total for each goal, and divide it by the number of months in your timeline. For example, if you’ve decided you want to have an emergency fund of $24,000 established in four years’ time, you’ll divide $24,000 by 48 months to get $500 a month. This is the amount you’ll need to set aside each month to reach your goal in time. Do this for each of your goals. If you do not set a timeline, it will be really easy to not meet those goals.
  5. Automate your savings
    Once you’ve got your savings plan ready to go, it’s best to make it automatic. You can set up a monthly transfer from your credit union checking account to your credit union savings account. This way, your savings will grow even when you forget to feed them. If you need help setting up the automatic transfers, check out my ‘Get to Movin‘ blog post. It has step-by-step instructions.

Congrats–you’ve mastered the art of paying yourself first!

Related posts

man with phone in hand sitting with laptop

5 Tips for Preparing a Post-College Budget

One of the biggest tasks you’ll face as you start your post-college life is setting up a budget. If you haven’t lived on your own before, you won’t have a history of bills and expenses to use as a reference, so you’ll have to estimate. Allow room for some mistakes, and use a personal finance app to plan. Don’t forget to leave a bit of your budget for fun, so you don’t burn out just as you’re getting started! Continue reading
man and woman looking at laptop

Last Minute Shopping Hacks

So, in spite of all the cautions, you still waited until the last minute for your holiday shopping. Well, lucky for you, we’ve got some hacks to help. Shop early in the mornings, when the shelves are stocked, or browse online and order for store pickup. Shop your local small businesses to find great stuff and keep your money local. Remember that Dec. 14 is Free Shipping Day for those gifts you’re mailing! For fun stuff, hit the dollar store for stocking stuffers. And if all else fails, there’s always gift cards! Continue reading
lady screaming

Frightening Financials

If your finances remind you of a horror movie, Abilene Teachers FCU can help you with reducing scary credit card balances and saving for the future. But you’re on your own when it comes to the ax-wielding pizza guy wanting to collect for more than a large pepperoni. Continue reading