Why You Need To Pay Yourself First

PYF – Pay Yourself First

You may have heard this term before and not know what it meant, but I’m here to tell you, it’s easy and necessary to financial success! It’s easy because once you set it up, it happens automatically.

What Does Pay Yourself First Mean?

It means putting money into a savings account, of whatever kind as soon as you get paid. It can also mean putting extra money onto your debt until it is gone so that you can redistribute that money into other categories. I believe you need to be saving for the future even while you are paying off debt.

Ideally you should be saving about 10% of your income, contributing to your RRSP and your Tax Free Savings Account.

The “pay yourself first” method will help you save for:

Retirement
Emergencies
Vacations
Other big planned purchases

The idea of my “zero based budget” is to budget in my saving so that I’m not only saving what’s left over at the end of the month after spending. This makes sure I contribute every single month.

How Do I Pay Myself First?

Automation is your best friend. It would be so easy to forget to transfer money over or to decide not to save this month.

You can set up an ongoing transfer with your bank. This is what I have! Every two weeks on payday a set amount goes into my RRSP, and once a month money transfers over into my TFSA, and other savings accounts. I don’t have to do anything, which is good because payday is Friday and I don’t have enough brain cells left to remember to do anything.

The other option is through your payroll company; send a percentage of your income into a savings account so you never see it. I may switch to this method once we have all of our debt paid off.

What If I Already Spend More Than I Make?

If you’re in the red every month, it’s time to make some changes, friend. Making a budget will help you stay on track. You may have to make some difficult decisions to cut back, but it will be worth it in the long run. The other option is to make more money by taking on another job or apply for different position.

Why Is This Important?

35% of Canadians aren’t saving for retirement. 44% of Canadians don’t have $5000 for an emergency and 21% don’t have $1000. I can’t imagine being 80 years old and still working because I didn’t set aside any money throughout my life in order to retire, or being faced with an emergency and going $1000 into debt because I didn’t save. You need to make yourself a priority so that you don’t have to spend your whole life working.