This Is Why You Pay Yourself First

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Image courtesy of jannoon028 at FreeDigitalPhotos.net

I’ve been generally keeping an eye on what my son spends his money on, as I can see his account details when I log into my bank’s online portal. The agreement was that he could spend his first two paychecks as he wished. After that, he must transfer $150 of each paycheck into his savings account.

Transferring the funds to his savings account on payday is a great way to teach the concept of pay yourself first.

We haven’t made it to the bank yet to open his savings account. But, I’ve been keeping track of how much of his checking account balance is owed to savings once we get there. We’ve both mentioned it a couple of times, but between our work schedules, him hanging out with friends, and every other excuse you can think of, we just haven’t physically made it to the bank to open the account.

He spends his money on normal teenager stuff including movies, online games, and food when he’s on break at work. Every now and then buys something more expensive, like a new microphone or gaming mouse for his computer. I mention to him that I saw the purchase, but I don’t say much else as long as the account stays above what needs to be transferred to his savings.

Last week he informed me he had ordered a new (faster) hard drive for his computer. It was just what he was looking for, and it was on sale for a total of $190 with tax and shipping. I checked his account balance and noticed that the purchase had brought his balance below what needed to go to his savings account.

When I mentioned he had overspent, he disagreed with me.

The good news is that he had thought about fact that there is an amount of money that needs to go into his savings account. The bad news is he had calculated incorrectly. I showed him his account history, reminded him that the first two paychecks were all his, and then added up the amount of deposits since then and multiplied by $150.

Overspending is too easy when you do not pay yourself first.

I’ve been in similar situations, where for one reason or another I don’t make that transfer into savings a priority.

  • I feel entitled to spend it : I look at the balance over and over. I tell myself that I earned that money, I should be able to use it. When the money is in my main spending account, I feel entitled to spend it.
  • I forget that that I need to transfer to savings : Just as what happened to my son, I may forget that I haven’t transferred the funds to my savings. I then spend the funds, and realize later that my savings account isn’t growing as fast as it should.

I take some of the blame for my son’s overspending. Action by myself is required to get his savings account opened up, as my bank requires an adult present to open any teen account. I should have made the time to do it. I also could have reminded him periodically how much of his balance was owed to savings soΒ  we were on the same page. After all, he’s a teenager in the midst of learning how to handle his funds and will require assistance.

That being said, this is a great example of what happens when we do not make savings a priority. Making that transfer to the saving account an automatic action, something that is just done out of habit, will prevent overspending and help us all meet our savings goals.

Do you pay yourself first? If you don’t, do you find it easy to overspend?

About Travis

28 Responses to “This Is Why You Pay Yourself First”

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  1. There is always something to spend money on if you don’t pay yourself first. It must be really exciting for your son to have a pay check, and I can see why he would want to buy cool things for himself, but someday he will appreciate the saving lessons you are passing along.

  2. We do, we have it automated, so there is no room for human error.

  3. I have friends and family members who desperately need to learn this lesson. I get tired of hearing they don’t have any money leftover at the end of the month to save. Save first, then learn to live and have fun on the rest. It isn’t rocket science, but it’s hard for people to grasp for some reason.

    • Travis says:

      It’s a fundamental change in thinking Holly. For someone that has always spent what they needed (or more correctly: wanted), and then saved the leftovers, the concept of saving FIRST is foreign and a drastic change that is hard to do. Limiting your own spending is HARD!

  4. It can be so easy to get caught in the trap of overspending if you’re not paying yourself first. It took us some time to develop, but we have several different accounts that we either automate or physically transfer money to each month and that helps keep us on track. We’ve moved to paying ourselves once a month so paying ourselves first has become even more important.

    • Travis says:

      It’s all about priorities…..if you’re going to make saving a priority, then you need to take the appropriate actions. Sounds like you’ve got your priorities set just where you want them, John!

  5. Debt Hater says:

    I have my checking account set up to automatically transfer to my savings account each month, and I make my loan payments early in the month. So I think both situations help me in paying myself before I start spending any money.

    Also if your son purchased a SSD, it’s worth it in my opinion. I added one when I built my last computer, and it is going strong 3 years later. It boots up instantly and I don’t have to wait for most programs to load. Next time he’ll just have to wait an extra paycheck for it though!

    • Travis says:

      It was indeed an SSD….but he’s already got one. He has a small SSD that holds the OS and *some* of his games, but the bulk of his data resides on a traditional drive. So….he’s buying a bigger SSD to replace the traditional drive. I’m sure he’ll love the performance uptick, but like you said, he could have just waited one extra paycheck. πŸ™‚

  6. Chris says:

    When budgeting, this should just be a part of the budget, unless an employer is automatically putting the savings into a pension or 401k account.

    • Travis says:

      I agree, Chris. Some people don’t see it this way – some people view savings as an optional action that only takes place if they don’t spend all their money. Thanks for reading!

  7. It’s REALLY easy to do as a freelancer because nothing is taken out of the paycheck, including taxes, so it’s very important to make sure to do that each and every paycheck. I’ve been guilty of this one.

    • Travis says:

      Yeah, guilty of that one too. The first year I made significant blogging income my taxes were brutal…..I have to pay HOW MUCH in taxes??

  8. I definitely pay myself first because it is so darn easy to spend all the money. πŸ™‚ I love how you’re guiding your son to make good money decisions and think about how he’s using his money. He made a very common mistake, which I actually think is a good thing. I’d rather my girls make these kinds of mistakes now when I’m still watching so we can talk it through versus when they are on their own. It may not seem like a big deal to them and subsequently become easier to do the next time and so forth.

    • Travis says:

      We share the perspective of “it’s better they make the mistake now” when it comes to our kids. The stakes are low right now, and he can easily recover. I just hope the lessons make an impact and help guide him when he goes out on his own in a few years!

  9. Who else would I want to pay my money too? I like money, I like me, kind of works out. Took one bad purchase early on to discover that but I’m glad I did as a teenager instead of blowing my money on a larger purchase later on in life. It’s good to let kids fail and learn lessons.

  10. When you pay yourself first by automating your savings, you have clearly defined what your number one priority is. This is a great learning experience to teach your son. If you use the opposite approach toward savings, your mind tells you things like I will be able to save later when this or that happens. It is weird how β€œnever” seems to come around and your savings suffers as a consequence!

    The biggest β€œaha!” moment for me when this principle was in place, was that somehow I modified my lifestyle to be able to live on the remaining money left. We have incredible powers to adapt and form new habits if we just stick with it!

    • Travis says:

      I’m not a huge fan of automating the savings, Bryan. I like to have a bit more control over when things occur. I’ve heard too many stories of automated processes going wrong and costing people a huge headache. That being said, it can be just as automatic when you become disciplined enough to push that transfer funds button on each payday…. Thanks for stopping by!

  11. Michelle says:

    I love how you’re teaching your son how to manage his money! You’re doing a great job!

  12. Syed says:

    Hi Travis. Great points in this post. Transferring a set amount of money every month into savings has been a big habit of mine that has also saved my hide a number of times. Any type of savings or extra money that just sits in your checking account is like a lazy worker. That money could be doing a job such as padding your emergency fund, paying off debt or increasing your investments. But if it stays in your checking account it doesn’t do its job and is likely to be spent.

    My brother is a computer geek too, and he was beaming when he told me that he found a great deal on a video card he “needed”. It was only $200. I guess you have to be a computer guy to justify that amount, but still seems like a lot of money to spend on a “sale”.

    • Travis says:

      I like your analogy of money sitting in the checking account as a lazy worker….I’m sure that will pop into my head the next time I do a transfer to savings. πŸ™‚

      As for the $200 video card….you’d be surprised at how much you can spend on one of those…

      Thanks for reading!

  13. Tre says:

    I do pay myself first. Otherwise I spend the money πŸ™‚

  14. Mackenzie says:

    It is great that you are teaching your son an important money lesson early in life. Especially when college looms not to far in the distance and that’s where money lessons are really needed!! πŸ™‚

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