What does it mean to “pay yourself first”?

You’ve probably come across the term “pay yourself first” – a budgeting strategy that’s often recommended by financial advisers.

In this article, we investigate how this works, show you how to put it into practice, and examine whether you can pay yourself first if you’re in debt.

Tip: You may be able to benefit from a tax-free savings account – visit our savings and investments page for more options.

Don’t feel guilty if you can’t save

Times are tough and many of us have very little left at the end of the month to save, service our debt, or reach our goals. It may seem as though we’re living from payday to payday, with just enough to get by, which makes it difficult to plan.

“It is incredibly important to have savings, but how do you save when you’re hardly making ends meet?” says Traci Porter, a financial advisor at Efficient Wealth.

“Don’t feel stressed if you can’t commit to putting aside a monthly amount. It’s a challenging time for everyone, so try to make the best decisions you can with the resources you have,” she says.

Satisfying your current and future self

If you do have a little money left over at the end of the month, it may be tempting to spend. But the “pay yourself first” strategy dictates that you first draw up a budget that starts with what you would like to save each month, and use what’s left over to cover monthly expenses.

Some banking apps allow you to set up a savings wallet for this very purpose. Putting even a minimal amount aside – whether R20 or R200 – empowers you to think of yourself as someone who can save. Whether you save 10% or 0.5% of your income, you’re taking a positive step.

“We each have two financial personas – our current self and our future self,” says Gavin Lewin, a financial planner at Rich Ideas Group. “Paying your current self today means there’s less money available for your future self.”

He says it’s important to save even small amounts, as your current self is productive and can earn an income, but your future self may not be able to.

“Many of us can expect to live longer due to improved treatments and medical technology. If we are living longer, we must be able to afford to do so,” Lewin cautions.

Some practical tips for looking after you finances

Lewin says the best way to pay your future self is to automate the process.

“Set up an automatic transfer to a savings or investment vehicle,” he says. “You can also do this via a debit order or a stop order on your bank account.”

If you’re saving for short-term goals, Lewin notes, it’s a good idea to save in a bank account with the highest interest rate possible.

Porter says she favours saving small amounts in specific unit trusts in which there is no minimum or lump sum amount to pay.

“In the case of some products, you don’t even have to set up a debit order,” she notes. “You can just send your money via EFT, as and when you have extra cash available.

“Of course, it’s a good idea to speak to your financial advisor about which funds are right for you. The good news is, it’s easy to withdraw the funds if you need to do so, and there are no penalties involved.”

Can I save if I’m in debt?

Even if you’re in debt, it’s possible to save an amount each month, provided you’re able to service your current debts in full. Don’t take on more debt, as this will make it difficult for you to focus on saving.

You could also choose to repay debts as quickly as possible to get back on track, Lewin says, but it’s still important to bear in mind your future financial needs.

“By not providing for your future self through saving and investing, you may have to rely on future debt, family support, and government-funded payments, like SASSA grants, to survive,” Lewin warns.

“Either work towards buying assets that can provide an income in the future, or invest over time and increase your money through compounding growth. When you don’t pay yourself first, you miss out on both of these opportunities.”

Tip: A mortgage bond switch could save you funds that can be used to contribute to your future finances.