Why You Should Pay Yourself First - The Hack That Saves You Money

I thought I would share with you some of my thoughts about the concept of pay yourself first and how logically you can put it to your advantage.

Remember when you were a little kid and got an allowance or pocket money, which was the best thing ever? I say to people, treat that as your own money and pay yourself first, and you will cherish it because if that is the only money that you have to buy the things that you want, you are going to look after that money like it is liquid gold.

Around 10% was about the number I had in my head when I was looking at making the allowance for myself and my hubby. Then we ended up doing a backward budget, and we made sure that all the things in the budget were allocated and had something, and then anything outside of that was our responsibility.

How to budget

So the first thing with setting up your budget, you're going to go through all your bank account statements or anything where you spend money that you have some record and look at what are the things that you have to pay.

So are you renting or paying board somewhere you need to pay that, or do you have a mortgage? Then you must pay your bills, gas, electricity, water, et cetera, et cetera. Do you have school fees that you have to pay for? What are the things within your budget that you have to pay for?

Then you move on to the other things that might be in your budget that there are ways to either reduce or maybe even get rid of completely.

Your daily spending

Some people have cars. So you need to look at the service fee you need for that. How much is that per year? How much does it work out per paycheck, putting that away? What about gas? What about other wear and tear that you might need to look for? So, sit down and go through all your spending and your week.

What do you do each day? Where do you go? What are the things that you spend money on? Write down a massive list and start looking at it. Is it a want, or is it a need? Then you can start filtering out from there.

In our budget, we allocated what the thing was and who it covered, and we very quickly worked out what the things were.

Wants vs. needs

So after the mortgage and the bills, we started looking at clothing. Yes, all four of us will need clothing. The most essential thing. How much, on average, did we spend last year? We probably don't need to spend that much this year because we did buy some stuff, but a change of season and children grow. So we still put in a bit of an allocation that was there.

What do we need as far as personal care goes? Soap, shampoos, body wash, whatever, we put that into a category and very simply started sorting all of that out.

Food, anything that all four people in that house need. It all went into the budget and was allocated and sorted out there.

So after we allocated all of the needs for the family, we started looking at the wants and the things that maybe individual people have that don't support the house or the whole family. So that's the concept of your sanity money, pocket allowance, whatever you want to call it, whatever you want, that doesn't affect, touch, or help anybody else. That's your shopping.

A few examples of wants are beauty treatments. Do you like to get a facial or get waxing done or whatever else? If you need it to look presentable for your job, then probably that's a tax deduction for you. If it's just like a personal thing, I'd be looking at paying for it out of your own money.

It can take a little while to adapt to it because every time you think, oh, I'll buy something, you need to stop and think to yourself, is it a want or a need? Because I can tell you, you'll very quickly start working out which and where the money will come from, which is probably the next thing you need to think about.

Coming up with a total

Add all of those things that you think you may want to buy, and you'll have a bit of a ballpark figure about how much pocket money you should have for yourself. Hubby and I worked out that we would want about $25 a week or $100 a month, which would cover anything that came up.

We always found that we had more money than months usually, so we were pretty good because it does quickly make you stop spending when you can say this is all the money that I have, and I still have two weeks left, what if something comes up and I can't afford to go?

Then you can start looking at putting the extra into savings. What I used to do when I would get my $50 every other week was I immediately put $25 into savings, and then I had to live off of $25 for two weeks. It dramatically made me cut down my spending very quickly.

I highly suggest also that you use cash for your spending money. You can physically see how much money you have. Also, it is the psychological thing of handing that money over and then getting change. As I said, it has saved us thousands and helped me reduce my spending.

I know that many people have credit cards, and then they balance the budget at the end of the month, which is what we do now. But still, it doesn't help in the moment of spending because if you get to the end of the month and you're balancing a budget, and you go, we overspent in this area; how much will that impact you? With cash, once it's gone, that's it.

How to pay yourself first

Do you pay yourself first? How has it worked out for you? Share your experiences in the comments below.