Paying yourself first is a mindset used to positively impact one’s financial health. Anyone can implement this mindset and it can be tailored in a way that suits the individual and their goals. We take a look at the benefits of paying yourself first and what it means in the long term to your financial health, but let’s start by understanding what it means to ‘pay yourself first’.
Treat yourself like a bill
For years and years, we’ve all known that when you get paid you’ve more often than not got bills to pay. Whether it be electricity, water, rent or mortgage. Well, now add yourself to that list. By treating actions like topping up savings or proactively paying down debt as bills, you change the way you think about these actions. Saving or paying down debt is no longer an action you may do if you’ve got money leftover from your income after you’ve spent it on yourself. They become just as important as paying your other bills.
Build up your savings
One reason people pay themselves first is because it prioritises building up their savings. Consistently putting that certain figure aside each month, even if it’s as little as £20, over time will build up significantly. £20 a month could result in £240 after a year of saving. That’s £240 more than you would have saved if you hadn’t paid yourself first. By prioritising saving, you can set a target of how much money you want to save and then figure out each month the requirements to reach that financial goal.
Similar to enabling you to build up your savings comes the financial security aspect of having a savings pot. This means you are better prepared for unexpected costs in the future, ensuring detrimental damage isn’t being caused to your financial health. Similarly, it means you won’t experience as major of a setback in your debt pay-off journey. If you aim to set money aside each month for your savings, you can figure out how much you can also set aside to make one-off over-payments to your debt total, depending on the month.
If figuring out how much money should be set aside for one-off payments is too complicated, Incredible figures this out for you with the feature Overpay. If you’ve got additional money after paying yourself first from your budget but don’t know which of your credit cards to pay off first, Overpay takes this overwhelmed feeling away by using smart algorithms to figure out the most optimal card to pay, based on where the most time and interest can be saved.
Reduce your debt total
Paying yourself first helps you reduce your debt total because it reduces the temptation of spending your money on other things. By setting money aside for debt repayments first, you’re less likely to spend it on impulse purchases. This helps you to make consistent progress towards your debt repayment goals and eventually decrease your debt total. If you aim to put £100 aside in a certain month and you want to use £50 of that for your savings and then £50 as a debt contribution, that’s £100 set aside to enhance your financial health that could have been spent on unnecessary purchases that you might regret in the future. Paying yourself a set amount each month prevents this from happening and enables you to focus solely on your debt amount.