Saving money can often feel like an afterthought. There can sometimes be little to put towards savings after covering rent, bills, groceries, and entertainment. That’s where the “Pay Yourself First” savings method comes in. This budgeting strategy flips the script by prioritizing savings above all else, helping you build wealth and secure your financial future before focusing on day-to-day expenses.

Also called the 80/20 rule, this approach simplifies budgeting into two key steps: save first and spend the rest. Let’s explore how it works and how you can apply it to your finances.

What is the “Pay Yourself First” Savings Method?

The “Pay Yourself First” savings method is a budgeting strategy that emphasizes saving as the top priority. When you receive your paycheck, you immediately set aside a predetermined portion—commonly 20%—for savings, investments, or debt repayment. The remaining 80% is then used for all other expenses, including housing, utilities, groceries, and discretionary spending. This method ensures that saving becomes a habit and prevents the temptation to spend everything you earn. By treating savings like a mandatory expense, you’re effectively prioritizing your financial goals.

How the “Pay Yourself First” Savings Method Works:

Here’s a step-by-step guide to implementing this method:

1. Determine Your Savings Goal: Decide on a percentage of your income to allocate to savings. Many people start with 20%, but you can adjust based on your financial situation.
2. Automate Your Savings: Set up automatic transfers to your savings account, retirement fund, or investment account right after payday.
3. Spend the Rest: Use the remaining income for expenses and discretionary spending.
4. Adjust as Needed: If your savings goals increase, you can adjust the percentage you save, even if it means tightening your budget.