How to Pay Yourself First (and What to Fix When It Isn't Working)
Updated
When paying yourself first doesn't stick, the amount is usually too high, or the money is sitting somewhere too easy to reach.
Pay yourself first means that when your paycheck arrives, you set your savings aside before anything else and live on what's left.
If you only save "whatever is left over," there usually isn't anything left over, so you flip the order. It's a simple idea, and because it's so simple, the reasons it goes wrong are easy to spot too.
The basics of paying yourself first
- 1Decide how much of your take-home pay to set aside each month
- 2On payday, move that amount to an account separate from your spending money
- 3Live on the rest for the month
If you can set up step 2 as an automatic transfer, even better. When you move the money by hand, it's easy to skip it in a busy month.
How to choose the amount
You'll often hear "save 20% of your take-home pay," but rent and family situations vary so much that it's best treated as a rough guide.
What matters more than the percentage is whether you can keep it up for a full year.
In the first month or two, it's tempting to aim high. If that squeezes your budget and you end up pulling the money back out, all you're left with is the memory that "I couldn't do it." Starting a little too low and raising it when you have room works better.
If you can't decide, these steps make it easier.
- 1Work out your average monthly "income minus spending" for the last three months
- 2Set aside half of that
- 3If three months go by without it feeling tight, raise it a little
Why a separate account matters
When your savings sit in the same account as your spending money, the balance looks bigger than it really is, and it gets spent. Simply keeping the money in a different place makes you noticeably less likely to touch it.
| Where you keep it | How hard it is to dip into | Best for |
|---|---|---|
| Same account as your spending money | Very easy | Not recommended |
| Savings account at a different bank | Fairly hard | Emergency fund |
| CDs or automatic savings plans | Quite hard | Money you don't plan to use |
When you keep dipping into savings anyway
Most of the time, the reason isn't weak willpower. It's expenses you didn't plan for.
- You didn't account for once-a-year costs (taxes, car maintenance, holiday travel, replacing appliances)
- There's no cushion for sudden costs like medical bills
To prevent this, split your savings in two: money set aside for planned expenses and money you don't plan to use. Taking money out of the first one isn't dipping into savings. It's going according to plan.
How much you need in an emergency fund (savings to fall back on if your income suddenly drops) varies a lot from person to person. This article doesn't recommend a specific amount.
Figuring out what's going wrong
| Symptom | Likely cause | Fix |
|---|---|---|
| Every month is a struggle | The amount is too high | Lower it to something you can keep up for a year |
| You pull out a big chunk every few months | Once-a-year costs aren't planned for | Set up a separate fund for planned expenses |
| You forget to move the money | You're transferring by hand | Switch to an automatic transfer |
In Moneypet, you can register the money you set aside as its own account, so you can track your savings without it getting mixed up with your spending money.
Moneypet is a budgeting app where logging your spending earns food for your pet. Send your pet traveling and hatch insects from eggs, so you actually want to open it every day. Free to start.