“Pay yourself first” – WTF does that even mean?

Paying yourself first is like backwards budgeting. Instead of paying all the bills and saving whatever’s left over, the very first thing you do each pay is send a chunk of money to your savings and investments, before covering things like food shopping and other stuff.

This keeps your money flowing where you want it to.

How is paying yourself first helpful?

It’s useful because you’re saving or investing some of your money for your future self at the very moment you’re paid, before it leaks somewhere you hadn’t meant it to.

For me, that’s Uber Eats on payday and going rogue at the supermarket without a list.

My first attempts backfired

It’s super hard to know how much to pay yourself.

When I started working I would always overestimate how much I could save. On payday I would transfer an unrealistic amount to my savings account, only to drip-feed it back to my spending account over the next few days.

A week and a half later, I’d be broke again, eating toast until payday. So many times I'd go into overdraft or use my credit card, ending up in debt.

The old saying “Ignore, ignore, ignore” became a recurring mantra. I lived the worry-free life, without realising that in fact, under the surface, I was quite worried.

I only realised just how stressed out I was when my work ran a free money course. It changed everything.

These three steps helped me figure out how much I could afford to pay myself first

1. Tracking my spending

By tracking my spending for six months, I could see exactly where my money was going. Unsurprisingly, seeing how much I was spending on lunches and takeaways was pretty yuck.

2. Separate bank accounts

Setting up separate bank accounts for different expenses  sounds so easy – and it is – but it had never occurred to me.

It was absolutely life changing – I would fully recommend it. I’ve also customised the account names and pictures, and it’s surprisingly satisfying watching the balances grow (slowly, but still).

3. Knowing my spending priorities

Really thinking about what is important to me (hiking with friends, dance class and visiting family) and what wasn’t (buying lunch at work, going out when I could hang out with friends at home instead), I could start to put together a budget that actually worked, including paying myself first.

So how do I know how much to pay myself?

From tracking my spending, I knew how much my spending leaks (that money that dribbles out of your accounts without you noticing) were costing me. Redirecting this amount to savings or investments before I spent it was way more successful than guessing a random amount of say, $50 or $100.

The relief of finally making some progress made me realise how much running on empty had affected my wellbeing.

Sorted’s budgeting tool can help!

We know that keeping track of it is one of the hardest things about getting on top of our money. That’s why I love the Sorted budget planner. It’s an easy way to see the big picture of where your money is heading. By getting clearer on where my money is flowing, I have more freedom to send it where I want it to go, first.

What if I can’t find room to move within my budget?

For some, covering the necessities can be a challenge. If this is you, I highly recommend you chat to the good people at Money Talks. They are super helpful financial mentors, and well worth a phone call or text.

Even if you’re just making ends meet, they will be able to help you get to a more comfortable space. And before you know it, you’ll be paying yourself first.

WTFinance does this really mean?!

Get to know other helpful money terms in Te Reo Māori and English.