Always Pay Yourself FIRST!

I'm excited to discuss one of my favorite financial principles - ALWAYS PAY YOURSELF FIRST!


Most of my millennial followers routinely ask me about this topic and I covered it in my last book, “Beat the System…Create Your Own Pathway to Wealth” (FREE download at www.lyndaleesmith.com). The pay yourself first principle may seem difficult to apply at first, especially if you are strapped by debt or currently not saving money, but it is a great way to start changing your mindset.


Whether you manage your bill paying system online or on paper, you should always be allocating a set amount of money that goes to your own savings or investments every paycheck. If you are fortunate to have a 401K available at your workplace then you should already be putting in a minimum pre-tax amount, which is great because you don’t “feel” it as much, since it has little impact on your actual net pay. Investing in your future retirement is critical and is one component of paying yourself first, but you have no immediate benefit from your retirement investment, so you need to also be balanced when it comes to your savings. Being balanced means investing in your future needs, but also setting some money aside for your shorter-term life goals.


Planning how you want your life to turn out (while you can still affect the outcome) is the goal. Developing a “pay yourself first” mentality is the initial step. Understanding that every decision you make will impact your life in some way makes every decision important. When you don’t have a plan for what you want, or a strategy of how to get there, it is very difficult to make decisions that best serve you over the course of a lifetime. Not having a plan makes it extremely difficult to adjust for the unexpected events in life, and there will ALWAYS be unexpected challenges in life. If you have a plan, it is much easier to self-correct and modify your plan when the challenges show up.

One of the first exercises in my financial book is a self-evaluation. This step requires you to ask yourself a series of questions to lead you in developing an ultimate life strategy. The first one on the list is simply, “What do you want to achieve financially in your lifetime?” If you have not asked yourself that particular question then you need to contemplate the answer. While paying yourself first may seem overly simplistic, it is a critical step towards you achieving your specific financial goals.


Most of my clients struggle at first until they start to establish a strategic financial plan for themselves, especially if they currently pay their bills and have nothing left over. “Having nothing leftover” requires a deep dive to determine how exactly you are spending your money. Do you actually have no funds left at the end the month after paying your bills, or do you have no funds left at the end of the month because you spent 40% of your money on frivolous things that you don’t actually need? The pay yourself first principle (above 401K contributions) forces you to analyze your current spending and determine if the spending is absolutely necessary. For example, if you eat out with friends for lunch and/or dinner frequently, you need to total how much money you are investing weekly on restaurant meals. These are immediate areas you can cut back on and start redirecting those funds to your savings account.


I am always asked about what percentage of your income you should be saving for your financial plan. While it varies for every person based on their particular circumstances and income level, you should initially aspire to invest a minimum of 4-6% pre-tax funds in a retirement program (like a 401K) and then pay yourself 10% minimum in your savings from your remaining net take-home pay. You are striving for a plan that can change your situation and you will need to make some changes in your life to position yourself for even larger percentages. Ideally, I recommend a 20% investment in “you” to set yourself up for success in the future.


When you complete your self-evaluation from Chapter 1 in my book, you may realize your current rent or mortgage is too high (should be less than 30%); or that you are spending too much money on food and entertainment; or that your car payment is too high. These are all areas you can control. It may take you some time to intentionally make changes to these areas of spending, but if you are focused on you and optimizing your life financial goals, you can do it! You may even have to look at options for adding some additional income in the short term. While it’s no fun, a weekend job or using your own skills or knowledge to generate extra funds is a way to increase your income. Acknowledging you are out of balance on your expenses is a critical step to determining what action needs to be taken so you can pay yourself more and advance your life dreams.


Keeping your focus on the end of the year goal helps you to hold yourself accountable. A simple exercise I did when I got my first job out of college was to use a calendar. Each year I took a 12-month calendar and marked every single pay day for the entire year. I then decided how much I wanted to have in savings by the end of the year. This number was a realistic figure based on my salary. I simply divided that amount by the number of pay days to determine how much I needed to deposit on each pay day. This seems really fundamental, but it was my annual road map. I didn’t have to decide each pay day how much I could save, because it was already calculated out. My focus was on how much money I wanted in savings by the end of the year. My financial plan also allowed me to spend money each paycheck on stuff I wanted, but I determined that amount while also looking at my overall goals. Taking simple actions like this can guide you to financial success!


For example, let’s say you have almost no savings currently, so accumulating $5000 in 12-months would be a major accomplishment. This would also kick-start your investment opportunities for your life. What do you need to get there? Simply divide $5000 by 12-months, which means you need to save $417 each month. If you have 26 pay periods annually, then you would need to save an average of $193 per pay period. Depending on how your bills are currently structured you may need to save a higher amount in one pay period and the remaining amount in the next. That is why using a simple calendar works great. You can proactively calculate the amount needed per pay period and then just follow the plan as each paycheck is received.

This is a shift in mentality that can change your life! If you want to see how much you can save over time, go online and pull up a compound interest calculator. Plug in an annual savings of $5000 x the number of years you plan to save and a moderate interest amount of 6-8%. Play with those numbers and you will get inspired to save even more! Suddenly, a little discipline and some planning ahead equates to achieving real life dreams!




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