The Importance of Paying Yourself First

Paying yourself first might seem like an odd idea. Let me explain. What usually happens each month is that we pay all the bills, with most of our salary disappearing before we’ve even seen it. If there’s anything left, that’s what we put towards goals such as paying off credit card debt (beyond the minimum payment), building a pension, or saving for a house deposit. Paying yourself first means prioritising those goals, then paying for everything else. That’s not to suggest that you avoid bills, rather that you reduce your outgoings so they’re covered by what’s left. This could involve drastic shifts, such as downsizing, or smaller changes like finding a cheaper electricity provider.

Here are three tips to help you establish the habit of paying yourself first.

1. Start small

Photo of snowballAs I mentioned in a previous post, transformation is usually unrealistic and unsustainable. It’s much better to be gentle on yourself by starting small. This helps build confidence and provides evidence of success. Depending on your circumstances, you might initially seek to save £25 each month. Over 10 years, this modest habit would give you a pot worth £3,000.1 Just imagine what you could achieve with a larger amount. You can think of this as a gift to your future self: an opportunity to go on a trip, take some unpaid leave from work, or buy a fancy guitar. It doesn’t matter if you don’t know what you’d spend it on – Future You will know.

If you’re paying down debt, repaying even slightly above the minimum payment will liberate you much sooner. For instance, if you have a card balance of £10,000, your minimum payment is likely to be £500 (5% of the total) in the first month, which slowly reduces as you pay it off (so, £478.64 in the second month, etc).2 It would actually take 10 years for your debt to disappear. Keep paying a fixed amount of £500, however, and you’ll be free in just over 18 months. Take a look at the Snowball Calculator to see what a difference overpayment could make to you.

2. Reduce spending

Now you know what a difference a small amount of money can make, it’s time to identify some potential savings. Don’t be too draconian, as you’re looking to establish a sustainable habit. Start with something that you won’t notice much, such as cancelling the subscription to a magazine you never get around to reading. Most of us can easily save a few quid each month by swapping energy or mobile phone providers. Yes, it’s a bit of hassle, but the rewards are significant over time. Since ditching my phone contract a couple of years ago and getting a cheap SIM card, I’ve saved over £600.

3. Increase your income

Admittedly, this one is harder. Few of us will get a pay rise in the current climate, but it’s never been easier to maintain a side hustle – a freelance activity that generates some additional income. I did this back in the nineties when I had a large mortgage and a very leaky roof. Once my house was watertight, I carried on with my freelance business and invested the income each month. That stash meant I could finally go to university at the age of 32. Money isn’t necessarily about building wealth, it’s there to give you options and opportunities.

If you do get a pay rise this year, consider saving that extra money, instead of letting it get absorbed in your general spending. Set up a direct debit before you get used to having it.


The only way to reach our financial goals is to establish saving as a priority. It’s like the task that languishes at the bottom of the to-do list – unless it rises to the top at some point, it’s always gets pushed to tomorrow. Take small steps today and you’ll make giant leaps in the future.

Image © Jakub Krechowicz –

  1. ignoring inflation and interest []
  2. Based on an APR of 10% []
Catherine Pope

I'm a financial coach who loves Victorian novels, technology, and big books about pensions.

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Juliana - January 23, 2019

Wise words as always Dr. I have taken your methodology on board , starting with small things first – not giving in to the lure of buy one get one free etc, paying my credit card off each month, not taking cash to work with me, so I am not able to make random purchases from the Munchy machines, buying petrol at Tesco where it’s cheaper.
Mindset is changing !
Thank you !

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