If you’re not sipping Champagne with the 0.0000026% lucky few who’ve won Lotto, perhaps now’s the time to put energy into reaching your money goals in other ways. Paying yourself first is a simple budgeting strategy that you could add to your bag of tricks to help change your money habits.
Paying yourself first (aka reverse budgeting) is a tried and tested hack, especially for beginner investors. Every ‘financial guru’, #finfluencer and their podcast will talk about it. And, in theory, it’s bite-sized and possible for everyone to do.
What does paying yourself first actually mean?
Simple. When you get paid, immediately set aside your savings, emergency fund and investment money. Think of it as a payday ritual. As soon as your pay lands in your bank account, put a portion of that money aside into your chosen funds, aka, pay yourself first.
Yep, do it before going out on FriYAY night or saving for that new car you’ve been eyeing up. When you pay yourself first, it’s kinda like reminding yourself that YOU are your top priority, not the million other shiny things competing for your money.
Why is it important to pay yourself first?
When you’re in the habit of paying yourself last, (only saving and investing any money leftover at the end of each pay cycle), it can seem like an impossible stretch finding an extra $100 or $200 to take out of your weekly or monthly budget. What if you get caught short and your card declines?!
The thing is, the human brain is pretty clever when it comes to sorting out immediate threats (like ducking when someone lobs a jandal at you). When you can’t touch the money you’ve paid yourself and funds are looking tight, you might be inclined to cook instead of getting takeaways, take a bus instead of a taxi, and stare at the ceiling when someone asks who's getting the next round of drinks.
On the flip side, prioritising our future selves is probably a leap too far for the ancient lizard part of our brains. We’re simply not wired to care as much about problems that are 20 years away as we are about today (hello investing for retirement, and climate change, you called?). It’s a survival thing. When you pay yourself last and have nothing left to invest, you probably won’t say see-ya-later to the takeaways, you’ll skip investing, ‘just for this week’ right…? But hey, you won’t feel any immediate pain from not investing, and in the short term you won’t feel the pinch, that’s for future you to deal with!
Reality is, if you’re not prioritising yourself by setting aside money to pay yourself first, you could feel like you’ve put yourself last. We’re guessing that living your best life in the future probably doesn’t look like hunting for coins under the couch cushions and stressing about bills. Personal finance strategies like paying yourself first not only set you up with handy money habits, they can also help you to achieve the future lifestyle you want to live.
How much should I pay myself first?
It can be tempting to put a number on it straight away, especially if you’re amping to get started! But hear us out, the best budgeting strategies for beginners can start with behaviour changes, where you can start small, and start today.
Chances are, you know roughly what’s left in your account the day before payday. You could start by paying yourself that, and chalk up some early wins. With Hatch, you can deposit a small fixed amount every week or month, then set up auto-investments to squirrel your money away.
Paying yourself first is a long term game, and advice for beginner investors is the same advice anyone who’s ever tried to eat an elephant will give you; one bite (one pay day!) at a time is the only way to get it done.
Over time you might see your money benefit from compound growth, and if you’re used to the idea of paying yourself first, it could be time to give your future self a little pay rise for a job well done! Many think of it like taking one small step today and to potentially make a giant leap towards a better future.
You could take the first step by putting yourself on your payroll today, and setting up an automatic payment. The amount isn’t what matters, the action is! Starting an AP for any manageable amount (even that $2.37 you know for sure you’ve got left over) can get you in the habit of paying yourself first. In 20 years time, it might just feel like you were in that 0.0000026% that won lotto, but luck won’t have anything to do with it.