Why Pay Yourself First and How to Start?

In this post, I am going to share 5 good reasons why you must pay yourself first. This is followed by 4 practical ways to pay yourself first.

To start with, at the end of the month, most of us, the monthly wage earners are waiting for our salary from our employers. Some receive their salary by direct bank-in to their bank accounts and some receive their salary through cheques.

Perhaps, there is also an employer who pays cash to their employees. No matter what, the most important part is we want to see the money after a month of hard work.

But, do you realise that upon receiving the salary, we transfer a big portion of our hard-earned money to someone else?

We transfer the money to our creditors:

• the bank from which we loan our house
• another bank from which we loan our car
• the insurance company from which we seek insurance and medical coverage
• the telco provider who provides us with the phone lines and broadband services
• credit card companies
• the cable company that provides us with updated movies, drama and entertainment
• the companies who provide us with water and electricity

Some of us also use a big portion of our monthly paycheque to settle:

• personal loan
• credit card debts
• study loans such as PTPTN
• other loans

After paying all our creditors, there is little money left for us. Then, we tell ourselves that ‘I don’t have money for saving’.

Does it sound familiar?

It is never easy to train our minds to pay ourselves first. But, you should at least try to pay yourself first.

5 good reasons why you must pay yourself first

Here are 5 good reasons why you must pay yourself first:

1. You earned the money, you deserved it

Do you know that you only receive the money after a month (or an average of 160 hours) of hard work?

It is precious.

So, you have to save some of it under your name. Later, you can use it to build your emergency fund, as monthly savings or even prepare for your retirement fund.

2. Put priority on yourself compared to the rest of the creditors

By practising paying yourself first, you will treat yourself as one of the monthly creditors.

The main difference is that you will maintain the money under your name and keep it safely (in an interest-bearing account) rather than transferring it to someone else account.

Furthermore, it usually won’t work if you wait till you finished paying the rest of the creditors. Most likely, there is no balance left.

3. You must prepare yourself for unexpected situations

What I meant by unexpected situations are things like suddenly being out of a job or not being able to work or earn money.

Now that you are healthy and fit, and able to earn money. Have you ever thought of a situation where you are not able to bring home any income? What will happen to you and your dependents?

The weather won’t always be sunny. You must prepare yourself for the rainy days.

4. It is your baby step in financial planning

Once you have started to pay yourself first and see the money growing after a few months, there is a kind of special energy that will encourage you to be more alert towards the financial matter.

You will get hooked on saving more money.

5. You pay yourself because you love yourself

One of the many ways to show love is by providing financial security to oneself.

By paying yourself first, it shows that you care about yourself and your future.

How to pay yourself first?

Now that you know the concept and the importance of why you need to pay yourself first.

But, with the current economic crisis, demanding lifestyle and our never-ending wish list, it is easier said than done.

Thus, I listed below 4 practical ways to pay yourself first.

1. Transfer to another saving account

Upon receiving your salary, make it a habit to withdraw a portion of it and directly deposit it to another saving account. Preferable a savings account without an ATM card or cheque book.

So, it won’t be easy for you to withdraw the money when you have the desire to spend it away.

If you find it hard to start with 10% of 20% of your salary, try with a smaller amount.

As time goes by, you will find yourself to be able to save more and more.

But, you must make sure it’s your first priority before you spend your salary. This method works best if you are someone with a high level of discipline.

2. Do auto-debit

Arrange an auto-debit with your bank to automatically transfer a certain amount of money (on selected date) into another saving account.

You can choose to do it monthly, quarterly, half-yearly or annually.

The best way would be on a monthly basis. Because the main idea is to save a portion of your monthly income.

Personally, I find that this is the best method as it is natural for us to be forgetful to perform the same task as time goes by.

Therefore, it is better to leave this task to the bank system.

3. Get help from the Human Resource department

Try to ask your employer or human resource department if it is possible to directly pay a portion of your salary to another saving account.

This method is almost the same as the first method. The difference is your employer will do it for you, instead of you doing it yourself.

Before you get to see the money in your bank account, your employer has already helped you to transfer it to another account.

And because you didn’t get to see the money, you won’t have the desire to spend it away.

4. Arrange standing instruction to an investment account

I would consider the investment as a way to pay myself first. If you have an extra of RM500 or RM1,000, why not start a unit trust fund? or investing in robo-advisor such as StashAway Malaysia?

And arrange for a standing instruction (SI) with the unit trust or robo-advisor company to invest a fixed amount of money in your fund, on a monthly basis.

As time goes by, you’ll be surprised to see how much you’ve saved.

Final thoughts

After all the hard work, we deserved a good portion of our hard-earned money.

So, from now onwards, start to pay yourself before paying the creditors. Upon receiving your salary, make sure you pay a portion of the money to yourself.

Perhaps you can just start with a small amount and when you get more comfortable, increase the amount.

If you didn’t pay yourself, who else would?