Pay Yourself First

AAA

DEFINITION of 'Pay Yourself First'

A phrase commonly used in personal finance and retirement planning literature that means to automatically route your specified savings contribution from each paycheck at the time it is received.

Because the savings contributions are automatically routed from each paycheck to your investment account, this process is said to be "paying yourself first"; in other words, paying yourself before you begin paying your monthly living expenses and making discretionary purchases.

INVESTOPEDIA EXPLAINS 'Pay Yourself First'

This simple system is touted by many personal finance professionals and retirement planners as a very effective way of ensuring that individuals continue to make their chosen savings contributions month after month. It removes the temptation to skip a given month's contribution and the risk that funds will be spent before the contribution has been made.

Regular, consistent savings contributions go a long way toward building a long-term nest egg, and some financial professionals even go so far as to call "pay yourself first" the golden rule of personal finance.

RELATED TERMS
  1. Nest Egg

    A substantial sum of money that has been saved or invested for ...
  2. Accumulation Period

    1. The phase in an investor's life when he/she builds up his/her ...
  3. Personal Finance

    All financial decisions and activities of an individual, this ...
  4. Savings

    According to Keynesian economics, the amount left over when the ...
  5. Compounding

    The ability of an asset to generate earnings, which are then ...
  6. Financial Planner

    A qualified investment professional who helps individuals and ...
RELATED FAQS
  1. Is it easier to save for retirement if you start earlier in life? Can I make up for ...

    In general, the earlier you start saving for retirement, the easier it will be to afford, given the number of financial obligations ... Read Full Answer >>
Related Articles
  1. Savings

    5 Retirement Planning Rules For Recent Graduates

    The future may seem far off, but now is the time to plan for it.
  2. Budgeting

    Debunking 10 Budget Myths

    Don't let these excuses prevent you from reaching your financial goals.
  3. Investing Basics

    How To Invest On A Shoestring Budget

    Money is tight when you're young, but don't let that stop you from pursuing future riches.
  4. Budgeting

    The Beauty Of Budgeting

    Make it to the end of the month, before you run out of money.
  5. Taxes

    8 Financial Tips For Young Adults

    You don't need an MBA to learn how to save money and invest in your future.
  6. Options & Futures

    10 Simple Steps To Financial Security Before 30

    Find out how to reach your long-term goals without becoming a tightwad.
  7. Retirement

    Are You A Disciplined Investor?

    Don't let "financial porn" steer you away from a sensible, long-term approach to investing.
  8. Retirement

    The Indiana Jones Guide To Getting Ahead

    Follow Indy's advice to conquer the obstacles blocking your path to financial well-being.
  9. Budgeting

    8 Reasons To Never Borrow From Your 401(k)

    Find out why dipping into your future savings can have serious consequences.
  10. Retirement

    Are You Getting The Best Retirement Advice?

    What you need to know in order to check.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center