Pay Yourself First


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.

BREAKING DOWN '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.

  1. Personal Finance

    All financial decisions and activities of an individual or household, ...
  2. Nest Egg

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

    1. The phase in an investor's life when he/she builds up his/her ...
  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 Articles
  1. Budgeting

    This Is the Year to Start Budgeting

    Whether your issue is credit card debt, student loans (or the fact that Social Security isn't rising next year), it's time to learn how to build a budget.
  2. Savings

    5 Retirement Planning Rules For Recent Graduates

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

    Debunking 10 Budget Myths

    Don't let these excuses prevent you from reaching your financial goals.
  4. 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.
  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

    How Much Money Do You Need to Retire at 56?

    Who wouldn't want to retire early and enjoy the good life? The question is, "How much will it cost?" Here's a quick and dirty way to get an answer.
  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 >>
  2. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  3. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  4. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  5. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  6. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Flier

    The slang term for a decision to invest in highly speculative investments.
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center