Paying Yourself First: How to Trick Yourself Into Saving Money

Pay yourself first. It’s the motto that first got me interested in personal finance and made the lightbulb turn on in my head. Pay. Yourself. First. I love that! Who doesn’t want to prioritize keeping your money before sending it off to pay for myriad services and items in our economy today?!

Let me explain. In some ways, it’s more about the attitude than anything. It’s about committing to save $10 out of your paycheck for yourself (for your emergency fund, towards your Patagonia travel dream, towards your goals) BEFORE paying rent, paying bills, paying for those happy hours out, etc. It’s merely a small ordering change on how you allocate your paycheck, and a BIG mindset shift on why you’re doing it. Let’s dive into it.

For many people, the ordering looks like this:

1. Get paycheck

2. Pay bills/save or pay for rent

3. Save some of what’s left (maybe)

For some people, it even looks like this:

1. Overspend previous paycheck

2. Get current paycheck

3. Pay previous paycheck’s remaining expenses (ahem, credit cards, ahem)

4. Pay bills/save or pay for rent

5. (May or may not) save something

What it should look like :

1. Get paycheck

2. Save previously-decided amount, say $200, for YOU

3. Pay bills/rent

See that sneaky little step 2 there - that is pay yourself first.

(Note: I’m of course simplifying here for illustrative purposes. You probably have multiple goals you’re trying to plan for, may have various debts you’re paying down, etc. The principle still holds.)

Now, it’s all about that mindset shift. You might be thinking -

“But Sarah, I almost never have anything left to save by step 3! How would I pay my bills?!”

Ah, and that is exactly the secret. By paying yourself first (socking that new step 2 money away where you can’t see it as easily), you’ve effectively hidden that money from yourself, so you won’t spend it. Where previously, that money was right there in your checking account balance and very available for spending - for impulse temptations and to balance your credit card spending against - now that money is no longer there for you to spend. This is you “fooling” your future tempted self into believing you don’t actually have that money for the last-minute happy hour, that apartment side table, or the souvenir in Israel. And you know what, it works. 

This is you “fooling” your future tempted self into believing you don’t actually have that money for the last-minute happy hour, that apartment side table, or the souvenir in Israel. And you know what, it works. 

Now, for for all those aspiring money rockstars out there, let’s add a few steps to help you be really pro:

1. Mentally plan how much you think you can save right away ahead of time, and what purpose it’s for

2. Get paycheck

3. Save previously-designated $ amount to separate account automatically

4. Pay bills/rent/expenses

5. Save anything leftover

There are very strategic reasons why these are in here. Number one - planning ahead. Purely because it’s so much less tempting to skip to the ‘spend’ part of the steps before the paycheck actually hits your bank account. You’re thinking rationally instead of like someone who just got paid. ;)

The addition to number 3 - there are two parts here. Separate, and automatic. Separate - you need somewhere to ‘hide’ the money from yourself! You’re much less likely to spend money that you can’t quite as easily access - even if it’s just a 2-3 day ACH transfer away from your regular bank account. 

The last point is my favorite - automate, automate, automate.

Automate, automate, automate.

I can’t stress enough that life will always get in the way of you saving money. When you get paid on Friday, there are a million other things that you’re already planning for that night’s activity, the weekend, calling your mom, making dinner, and so on and so forth. You’re more than likely going to NOT remember to transfer money out of your checking account that day. But generally, you know how much you’re going to get paid - that’s not a secret. Therefore, you set up an automatic recurring transfer for each payday ahead of time that takes the money out before you’ve even noticed it’s there. (If you’re really pro, you can often tell your employer to split your paycheck between your checking account and another account, aka a savings account.) Pro move. And it will add up over time like you wouldn’t believe.

(Note: Don’t play a savings shell game with yourself. It’s very possible to feel like you're saving money, even if you have to withdraw that money right back out every month to cover your expenses. Credit card article link)

(Another note: this is why 401(k) accounts work so well. You can set it and forget it -  In recent years companies have figured out that if they enroll you automatically themselves, most people will just stay there and contribute to their 401(k) without thinking about it.) 

And now, the best part for many people, is that even if you’re not a pro with budgets or tracking your spending (see here for approachable ways to do that), you can still make sure to spend less than you earn and save the difference by doing this!

Real life example: 

Rosalie gets paid $1,500 every two weeks on Fridays. She opens an online savings account and sets up an automatic transfer to start on each payday and transfer $250 into this account. She then has $1,250 available to spend until her next payday. And the process repeats. Rosalie only had to do the upfront work to determine the amount and set up the schedule, and now she is set!

Ready to be like Rosalie? Go for it! You’re on your way to becoming a money rockstar!

Need help deciding what that ‘safe to save’ amount is? Getting your paycheck/accounts automation set up? Schedule a free 15-minute video chat with Sarah to see if it’s a fit!

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