Pay Yourself First Strategy

Pay Yourself First Strategy

The “pay yourself first” budget is my favorite strategy to execute. I utilize this strategy with a slight modification. The “pay yourself first” budgeting strategy is a method that forces an individual to contribute to a retirement account, emergency fund, savings account, or other savings vehicle FIRST. This is my favorite strategy as it promotes saving before spending. I strongly suggest saving for your emergency and rainy-day fund first. Start investing immediately after those are funded and CEASE saving.

I’m a huge fan of “making your money work for you” so investing is one of the best routes to pursue. Let’s take a closer look at this strategy…

Step One: Calculate Your Income

The first line item in your budget is your total income (after taxes). This should include all monies earned from your employer, side hustles and any cash that is coming in. Even unexpected money that you receive throughout the month!  (Don’t cheat yourself) 

Step Two: Assess your monthly spending

Consider this the “one-on-one talk in the mirror” moment ☺. You should pull your bank & credit card statements and review all expenses. You should also jot down your other monthly expenses that you pay in cash. Download a budgeting app or use an excel spreadsheet to keep track Identify your needs/wants and prepare to make some changes. 

Step Three: Create a S.M.A.R.T. monthly financial goal

Determine how much of your monthly income you need to set aside to meet your savings goal is your first step. Saving for retirement and building an emergency fund should take priority over saving for a vacation or spending money where it’s not a necessity. Consider using the 50/30/20 approach. This method allocates 20% of your monthly income to savings and debt repayment, 50% to necessities and 30% to wants. 

Step Four: Adjust

Adjusting monthly is a very important rule of thumb. Our life, income and expenses change monthly so your budget will forever be a work in progress. The more diligent we are the better. 

In essence…

  1. Set your monthly financial goal

  2. Calculate your income

  3. Determine your expenses

    1. Separate your needs and wants

  4. Create a S.M.A.R.T. monthly financial goal

    1. Make adjustments to what you’re spending to be aligned to your financial goal

  5. Check progress monthly, reward yourself for completing your goal each month