5 Painless Ways to Pay Yourself First

by Emily Guy Birken · 9 comments

We all know that we ought to be paying ourselves first — by building a healthy emergency fund, investing in our retirement accounts, and saving for important future purchases.

However, it can feel like paying ourselves first will end up shortchanging our other financial obligations. How can you pay yourself first when you barely have enough money to make it to the end of each month?

Luckily, saving is just like Lao Tzu’s journey of a thousand miles. They both start with a single (and, in this case, easy) step.

Here are five ways you can painlessly start paying yourself first:

1. Automatically Transfer 1%

The best way to save money is to keep it out of your hot little hands in the first place. You can do that by automatically transferring funds to your savings or retirement account every time you get paid. That way, you never have the temptation to spend it.

Start by setting up an automatic transfer of 1% of each paycheck to a savings or even investment account. While it may seem as though 1% is hardly enough to be worth all the time to set up the process, it’s still more than you’d be saving otherwise. Once you get used to having your take-home pay reduced by such a small amount, you can easily increase your savings by another 1% — or more. Losing 1% is painless, and it will add up over time.

2. Save Your Change

This one’s an oldie but a goodie. Keep a jar in your house for pocket change, and deposit all the coins into your savings account once the jar is full.

You won’t feel any difference in your finances, and you’ll be adding money to your savings. You’ll get an extra boost if you label the jar with your savings goal, making your coin jar feel that much more important.

3. Reduce Your ATM Fees

If you regularly hit up the ATM for cash, you certainly know that ATM fees can add up. An easy way to save money is to halve the number of times you go to an out-of-network ATM.

For instance, if you’re in the habit of withdrawing cash twice a week, switch to a once-a-week, double-size withdrawal instead, saving yourself the second ATM fee. And since you are making fewer ATM runs, you can justify going the extra mile to an ATM that’s in your bank’s network so you won’t be charged any fees altogether. And while you’re at the ATM making your withdrawal, take a moment to transfer the amount of the (second, or both) ATM fee into your savings account. Voila! You’ve spent the same amount of money you usually do, but you’re paying yourself instead of the bank.

4. Keep Paying Paid-Off Loans

Sending off the last payment on a loan is certainly a reason for celebration. But it’s no reason to stop making the “payment.”

Instead, since you’re already used to living without the amount of the payment, just redirect it toward your savings or retirement account. Then you’ll get the benefit of an extra savings cushion without feeling deprived.

5. Deposit Your Windfalls

Suddenly coming into unexpected money — whether it’s a large tax return you weren’t anticipating or finding a twenty-dollar-bill in an old coat pocket — is one of the nicest feelings in the world. Rather than simply spending your windfall, put it into your savings account. It’s money you weren’t counting on or expecting, so you won’t miss it.

And since it’s a nice lump sum, you may want to put the amount into the mortgage or any other large loans such as a car loan if you already have a healthy emergency fund and have ample savings. You can act as if you never got that money, but your finances and net worth will definitely see that nice bump.

(One caveat, however: I personally think it’s a good idea to take a small portion of a windfall to treat yourself before putting the rest of it away. That way, you don’t feel deprived of that wonderful sensation of finding “free” money.)

The Bottom Line

No matter how tight the budget, there’s always a way to pay yourself first. You are likely making excuses for yourself otherwise. It’s just a matter of finding a little money here and there that you won’t miss. Even if it’s a dollar here and a dollar there, start putting them away. The hardest step is always the first one. Once you get that process down, then it’s easy to make adjustments to do more. Try it. You won’t regret it.

Have you tried any of these methods for paying yourself first? Have they worked for you?

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{ read the comments below or add one }

  • John S says:

    Great tips! I think we’ve done all of them in the past and still do a few of them today. We love to automate as it makes saving so much easier.

  • Abigail says:

    We’re doing something similar to the paid-off loan suggestion. We’re making car payments to ourselves into a car fund. Each month, we put aside $300. When we need to buy the next car, we’ll have a good sized down payment and will already be used to that expense in our budget.

    I love our change jar! It’s a Spiderman head (hubby’s a comic book nerd) so we just “feed Spidey” whenever we end up with extra change. It’s also a lifesaver when we have to fill our water jugs. We can take quarters from that, rather than get cash back at the grocery store. Especially nice since we usually only need $2.50 for the water but have to take out $5 for cash back. That little extra money gets significant over time.

    Oh and Liz Weston agrees with you about the windfall. She suggests taking 10% for yourself and banking the rest.

  • AnheuserBuschCU says:

    Thanks for sharing! Paying yourself first is such a good piece of advice, an oldie but a goodie.

  • Joe Morgan says:

    I love the 1% idea, though in years past when I got a raise, I would use that amount as the transfer amount.

    I don’t think I’ve ever paid ATM fees… it’s so easily avoided with a little planning ahead.

    #4 is awesome! I’ve done that myself, and when the payment in question is a car payment – it makes a big difference!

    With regards to #5, I usually tell people to save 80% and spend the remaining 20%. It’s a psychological thing I’ve noticed about people (and myself) that receiving a windfall and stashing in the bank tends to lead up to repressed spending urges that end up costing more down the the road. That 20% treat is usually enough to stave it off, and saving 80% still puts you ahead of the game.

    Great list – I’m psyched to start paying myself even more!

  • Michelle says:

    We need to work on paying ourselves first. We are so bad with this!

  • Rebecca says:

    Great post! I used to save money but then spend it on other things. Now I try to translate my savings into debt payoffs. I can’t wait for the day that I can “Keep Paying Paid-Off Loans”!!

  • Joel says:

    Great advice. I especially like the idea of continuing to make that payment. Most people think that money should be blown elsewhere now that their obligation is complete. But it really should go towards saving for your future!

  • Property Marbella says:

    A very good tip is not to have the loan on the car, house, credit cards to shop for etc. Everything costs extra money in the form of interest rates to banks when you have a loan. It is money that can be saved for your retirement.

  • Janine says:

    I started with putting 1% away, since you’re definitely right, you hardly would ever notice it’s gone. Then I increased it bit by bit and each time is hardly noticeable, but before I knew it I had a good emergency fund built up!

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