Pay Yourself First

What Does “Pay Yourself First” Mean?

“Pay Yourself First” is an investment mentality that promotes the automatic routing of savings contributions right from your paycheck before any living expenses or discretionary purchases. In simpler terms: you get paid, and before you pay Netflix, brunch, or that new pair of shoes, you pay… YOU!

This strategy encourages improved financial security by treating savings as a non-negotiable expense. Remember: your future self will thank you—probably while sipping a piña colada on a sunny beach! 🍹🌴

Key Concepts:

• Automatic Savings: Set up automatic transfers to your savings or investment accounts as soon as you receive your paycheck.
• Financial Discipline: By prioritizing savings, you’re training your brain to think of it as a necessity, just like rent or groceries.
• Frugality: It encourages people to spend wisely and live within their means after saving.

Main Term vs Similar Term Comparison

Example of “Pay Yourself First”

Scenario:

1. Monthly Salary: $3,000
2. Pay Yourself First Savings Goal: 20% → $600 automatically transferred to a savings account.
3. Living Expenses Remaining: $2,400 for rent, food, and fun times!

By following this approach, you ensure that you’re building wealth even before the new chores of adulting come calling.

Related Terms

1. Emergency Fund:

   • Definition: A savings fund set aside for unexpected expenses. Ideally, it contains three to six months’ worth of living expenses.

2. Retirement Accounts (e.g., IRA, 401(k)):

   • Definition: Special accounts that you can contribute to, usually with tax advantages, to save for retirement.

Example Calculation

Let’s break down the Pay Yourself First concept using a simple calculation:

    graph LR
	A[Monthly Income] --> B{Deduct 20%}
	B --> C[Pay Yourself First Savings]
	B --> D[Remaining Monthly Income]

Here, you can see that your monthly income goes into savings first, doing the heavy lifting before it shrinks away into expenses!

Humorous Insights

• “They say money talks—but I say it ought to shout, ‘Pay yourself first!’ before it slips away into the unknown.”
• “Remember, if you don’t pay yourself first, that Netflix subscription will sneak away your savings quicker than you can say ‘binge-watch’!”

Fun Facts:

• According to a survey by the Federal Reserve, about 40% of Americans say they couldn’t cover a $400 emergency expense without borrowing or selling something.
• Automating savings can increase the odds of achieving your savings goals by nearly 73%!

Frequently Asked Questions

What happens if my expenses exceed my income?

• It might be time to review and trim those non-essential expenses. Your future self and your savings account will thank you!

Can I start small?

• Absolutely! Start with any amount, and as your comfort grows, increase it. Remember, even pennies can grow into dollars!

Is paying my debts considered ‘paying myself’?

• While paying debts is important, in this strategy, focus on building savings first. Sinking a bit into savings might just motivate you to tackle debt more aggressively!

References & Further Reading

• The Total Money Makeover by Dave Ramsey: A plan for financial fitness.
• Your Money or Your Life by Vicki Robin: Transforming your relationship with money.
• National Endowment for Financial Education: A treasure trove of financial resources and educational tools.

Test Your Knowledge: Pay Yourself First Quiz

Thank you for reading! Remember, no one will pay you if you don’t pay yourself first — and judging by current job situations, it’s best to start saving that cash now! 💰