Pay Yourself First

The concept of paying yourself first comes from The Millionaire Next Door, a very famous personal finance book.

The book studies 1,000 “ordinary” millionaires and how they got that way.

My favorite quote from the book was a millionaire who said, “I only drink two types of beer – Budweiser or free.”

“Pay yourself first” simply means save, THEN spend.

Most of us pay everyone else first.

We pay the Whole Foods cashier, and the contractor, and the golf course attendant, and the waiter, and our lawn guy, and our pool guy – and the list goes on – before we pay ourselves.

It’s an easy way to make a lot of money, but have nothing to actually show for it. 

So for the next 12 months, try paying yourself first — then pay everyone else.

Here’s how to do it:

1. Set up an automatic transfer from your checking to your savings or brokerage account.

2. Save whatever amount you think you won’t notice (even if you only start with $50).

3. Every 90 days evaluate if you “felt it.” (An easy tell is if you had to dip into your emergency fund to pay off your credit cards.)

4. If you didn’t feel it, then double the automatic transfer. (If you felt it, then turn down the faucet.)

5. Reevaluate in another 90 days.

Around Financial Zen land, we call this the Faucet Savings Method. 

It’s an easy way to pay yourself first without sacrificing any of your lifestyle.