5 Reasons Why You Should Always Pay Yourself First

profile Brett Holzhauer  |  October 4, 2023

Building long-term wealth can be considered a goal, but it’s more closely akin to a lifelong journey without an end date. And long-term wealth isn’t merely sitting on a pile of cash, but rather having the funds to live life on your terms. But to achieve that long-term wealth, it can’t simply be money-in and money-out. You have to find ways to put money away for yourself before you pay your bills.

While this is a goal for many, it’s only practiced by some. Less than half of working-age Americans have any retirement savings, according to 2020 Census data.

But if you’re able to prioritize putting money in your pocket first, you give yourself a solid chance of growing a plentiful nest egg for the future.

Here’s how you can benefit from paying yourself first throughout your financial journey.

Prioritizing your financial future

Paying yourself first sends a clear message to yourself: your financial future matters. It's all too easy to put off saving and investing, thinking that you'll start when you have more income to spare. However, this approach often leads to procrastination and missed opportunities. By making saving a priority, you demonstrate your commitment to your long-term financial well-being. This mindset shift can positively impact your decision-making, encouraging you to make choices that align with your future goals rather than short-term impulses.

Forced savings discipline

Life is filled with financial demands, from bills to unexpected expenses. By paying yourself first, you create a financial safety net that acts as a buffer against these unpredictable circumstances. This disciplined approach ensures that a portion of your income is consistently put away, helping you avoid the pitfalls of overspending and living paycheck to paycheck. Treating saving as a non-negotiable expense ensures that you remain committed to your financial goals even when faced with tempting discretionary spending.

Using compound interest to your advantage

Compound interest is often referred to as the "eighth wonder of the world" for its remarkable ability to accelerate wealth growth. By paying yourself first and investing those savings inside a retirement account like a 401(k), you give compound interest the time it needs to work its magic. The longer your money is invested, the more it can grow exponentially. Over time, even small contributions can snowball into substantial wealth.

Hedging yourself against inflation

Inflation has been in nearly every financial headline the last few years as Americans have grappled with rising prices on nearly every purchase they make.

Prices on goods have risen 17% since 2020, and while many consumers have cut back their spending — paying yourself first is also an effective method to fight inflation. For example, instead of spending money unnecessarily on goods today, you can put your money to work in the stock market. The growth you could potentially experience can be a way to fight back against the everyday rising costs.

Protecting yourself against financial uncertainty

Economic fluctuations are a natural part of the financial landscape. Recessions, market downturns, and unforeseen events can impact your financial stability. By paying yourself first and building a strong financial foundation, you create a buffer that helps you weather economic storms. An emergency fund, for instance, can provide peace of mind knowing you have resources to fall back on in times of need. Moreover, having investments diversified across different asset classes and industries can mitigate risks associated with market volatility.

Bottom line

Paying yourself first isn't just a financial strategy, it's a mindset that empowers you to take control of your financial future. By making saving and investing a top priority, you're setting the stage for long-term wealth accumulation and financial security. This discipline not only safeguards you against unexpected expenses but also enables you to leverage the power of compound interest to your advantage. As you prioritize your financial future, you send a clear message that your goals matter and that you're committed to achieving them. Additionally, paying yourself first provides a buffer against economic uncertainties, allowing you to navigate challenging times with confidence.

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