PAY Yourself FIRST

What does 'Pay Yourself First' mean

"Pay yourself first" is a phrase popular in personal finance and retirement planning literature that means automatically routing your specified savings contribution from each paycheck at the time it is received. Because the savings contributions are automatically routed from each paycheck to your investment account, this process is considered to be paying yourself first; in other words, paying yourself before you begin paying your monthly living expenses and making discretionary purchases.

BREAKING DOWN 'Pay Yourself First'

Many personal finance professionals and retirement planners tout this idea as a very effective way to ensure that you continue to make your chosen savings contributions month after month. It removes the temptation to skip a contribution and spend the funds on expenses other than savings. Regular, consistent savings contributions go a long way toward building a long-term nest egg, and some financial professionals even go so far as to call "pay yourself first" the golden rule of personal finance.

Where Does Pay Yourself First Money Go?

If you are using this method of personal finance, you may opt to put your money in a range of savings vehicles, depending on your financial objectives. The phrase can refer to earmarking a certain percentage of your paycheck to be contributed to your retirement account, such as a 401(k). Alternatively, you may put the funds in a cash savings account. Paying yourself first simply involves building up a retirement account, creating an emergency fund or saving for other long-term goals, such as buying a house.

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