The Pay Yourself First Saving Habit

Ask the Experts

Diana Delaunay, TRB’s Senior Branch Sales Officer, explains that “Paying yourself is an excellent strategy to ensure a savings-oriented financial focus. It helps you avoid spending money you intend to save, and it guarantees consistent growth every pay period.”

According to the Federal Reserve’s 2022 Survey of Consumer Finances (SCF), around 98% of US families have a transaction savings account; however, Bankrate surveys show only 44% of households say they can cover a $1000 emergency expense, and over 70% say they haven’t seen an increase in emergency savings this year. If you have noticed your savings plateauing as well, implementing a pay-yourself-first approach can inject life back into healthy savings practices.

Most financial experts and consultants recommend saving 10-20% of your gross monthly income, and your initial goal should be to save an emergency fund equal to 2-3 months of income. 

How Do You Pay Yourself First?

1. Each month or pay period, put your savings account first, in front of the recurring line of bills.
2. Choose the amount you owe yourself, a flat fee or anywhere between 5-20% of your income.
3. Accept your self-payments each period and deposit them in a savings account.
4. Repeat this process every pay period and remember consistency, not the amount, is the key.

Rules for Paying Yourself First

1. There won’t be any leftovers. Don’t wait until the end of the month to pay yourself with the intention of saving whatever is left over. It seems counterintuitive to pay yourself first, but this strategy has gained popularity because paying yourself last, with whatever is left over at the end of the month, typically doesn’t work.
2. Be flexible. Start small with a simple monthly amount. Consider yourself just another subscription fee of $25 and see if you can develop the savings habit to build on later. Try to work up to a larger amount, or the standard recommended goal of saving 10-20%. 
3. If you find it difficult to be consistent, try other alternative savings methods like Cash Stuffing or the viral 100 Envelope Challenge. 
4. Create a separate savings account. Set up a savings account, and automate funding your account whenever possible to eliminate the need to handle savings transactions manually and remove the barrier of deciding to save. Prioritize an emergency savings fund first, and then consider multiple savings accounts, one where funds are kept available and another for long term safety like a high-yield savings or retirement account.

Benefits of Paying Yourself First 

You work all day to provide for your family or your own quality of life, trading your time for money, but the things you use in our everyday life—your house, car, cell phone—each represent a person you have already promised to share your income with before you ever hold the next paycheck. The pay-yourself-first strategy provides you the ability to see direct and immediate feedback from your labor. 

Paying yourself first is the first step to financial wellness, and while it gives you an easy method to build savings, it also gives you more satisfaction from your work and more sense of balance between work and life as you watch your savings grow.

Building wealth, growing your savings, and making your money multiply all start with having savings. You must start by thinking differently about savings and expenses and by paying yourself first. But before you can save, you must be in the black numbers. 

For help creating a budget, choose a budgeting tool that works for you or use TRB’s Monthly Budget Template. You can also contact a TRB banker to help you open a savings account with automatic transfer so you can start paying yourself first.

For more personal finance tips, visit the Personal Finance Archives – Texas Regional Bank.