Pay yourself first budget planning method

How does the firstly you pay yourself budget planning?

You may have heard the term in the title several times, but for most people, it’s not clear what this type of budget means when you plan backwards to pay yourself first.

What is the “pay yourself first” solution not about at all?

If you first hear the advice that in order to tell you that you are managing money well, pay yourself first, the story can easily slip aside.
This is not about scattering money. That would not pay for you, but for everyone from marketing to service providers. Don’t get me wrong, you also need fun, but this concept doesn’t about the immediate reward.

What does the “pay for yourself first” concept mean?

This is a type of budget planning where you set it aside for your own long-term goals before you spend on anything. By doing so, you paid for yourself (your later self) first. These long-term goals typically serve some larger savings goal, so it can be either a retirement goal or another more capital-intensive financial goal.
As easy as it is to understand the concept of “pay yourself first”, it is as difficult to apply from first try. That’s why let’s look a little deeper along with its pros and cons.

Those who use this concept often transfer their money to an investment account (but at least another bank account) with a standing transfer order, completely automatically, so there is no chance of them accidentally spending it. For everything else (housing, transport, livelihood, entertainment, etc.) only the amount is used that left after this.

How do you use “pay yourself first” budget planning?

First of all, before you move a single penny, decide if this strategy is for you at all. If, after considering the pros and cons, you have decided that this has been invented for you, follow these steps:

Write down your income and expenses

Before you decide how much you want to spend on savings, write down your regular monthly income and expenses. Expenditures will include ones that will be the same each month (this could be either a rent or even a loan repayment) and there will be variable costs between them. For variables, count on an average level.

Once that’s done, look at what are the costs you should definitely pay for and what are the items you can save on in order to have more money left to save for later.

If you are not at all sure how to get started with the numbers, use what is described in the 50/30/20 rule, and if it already works perfectly well for you, move on to planning it.

Set a savings goal and commit to it

Then you determine not only the purpose (e.g. for retirement purposes) but also the location of the investment. Choosing this will play a big part in how and how much the amount placed here will increase.

For a longer-term goal, you can choose a long-term investment that matches your own level of risk taking, which may involve slightly more risk in the short term, but you can achieve greater results in the long run. For your short-term goals, I definitely recommend short-term solutions, because here it’s more important to get the money you need for your goal (at least what you paid) back than to make extra profit.

Review and evaluate the results achieved at regular intervals

Like any budget planning method, the first pay yourself method is not static. Life changes, and with it, your goals and financial situation can change.
Keep your budget up to date to make your life and achieving your goals easier.