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How to Build a “Pay Yourself First” Budget

Create a Budget, Pay Off Debt and Set New Goals with the PYF Method

I Love Making Money Staff & writers

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Saving money can be hard, regardless of your financial situation. Sure, you can save a dollar here or there by buying generic brand food products. But those savings don’t always add up in the long-run.

To really grow your savings account, you need a long-term savings goal. Then, you need to make a plan to regularly contribute to that savings account.

For most folks, both of these steps occur while making a personal budget. But most other budgeting systems make contributions a low priority.

That’s where the “Pay Yourself First” (PYF) budget comes into the picture. This budgeting method is focused on making your savings goal a top priority. This effectively shifts the paradigm to help you reach your long-term financial goals.

Want to learn more about this innovative budgeting method? This blog spot will introduce you to this method in its most basic form. I’ll also highlight this method’s several benefits and drawbacks side-by-side.

Don’t wait until it is too late to grow your savings account. Try out the PYF budget method for yourself and you’ll start immediately seeing the difference!

What is The Pay Your First Budget Method?

With the “Pay Yourself First” budget, the main goal should be clear as day. Using this technique, you’ll be focused on putting away money rather than dividing it up for spending.

To do that, you’ll reverse the usual budgeting formula. With a standard budget, your expenses are placed at the forefront. With the PYF Budgeting Method, you’ll place money into your savings account before turning to your expenses.

You may feel hesitant about this method at first. That’s okay because in truth you are going against so-called “common sense.” But with practice, you can really make this budget method work well for you.

Getting Started with “Pay Yourself First”

To start in with the PYF Budget, you’ll need to follow a few steps. These will help ensure you are able to take advantage of this method’s benefits.

Step 1: Spending Assessment

To start off, you’ll need to know how much you are presently spending. This can be done by gathering expenses, receipts and credit card statements.

Using these documents, try to make month-by-month average for your spending. If you are able to, categorize these spending averages. This will make it easier to use those averages down the line.

Don’t forget to include fees you’ve been charged as well. This includes overdraft and late fees from bills. These are expenses we’ll eliminate first.

Once you have your expenses in front of you, compare them to your average income. If your expenses exceed your income, then it is clear why you have not been able to save much.

If your expenses are lower, then you should be able to determine how much you are “saving” per month. In all likelihood, this amount is lower than you’d like it to be. That’s okay because you’ll soon be improving that per-month savings amount.

Step 2: Set a Savings Goal

Set a Savings Goal by Paying Yourself First

At this stage, you’ll be determining how much to “pay yourself.” In other words, you’ll be working to increase how much money goes into your savings each month.

To do this, you’ll first want to establish a long-term savings goal. This could be focused on any major financial investment. However, here are some of the most common goals worth saving for:

  • Emergency fund
  • Education fund
  • Healthcare
  • New Car
  • Home Down Payment
  • Investment
  • Retirement

Once you know what you are saving for, do some research to evaluate the cost of that goal. Once you’ve settled on a figure, divide that amount by 12 (for 12 months in a year).

For example, I have $1200 left after all expenses & food. My goal is to buy an investment that can be used as a rental or an air bnb.

I want to save for a down payment plus repairs to get it rent-ready.

The investment cost: $65,000.
The repair cost: $22,000.
Total cost: $87,000

I need to save 20% for the downpayment: $17,400.

That would take me 14.5 months to save for an investment.

The resulting sum will tell you how much you’ll need to save over the following year to hit your goal. If that amount is not feasible, divide it again to expand your goal to 2, 5, or even 10 years in length.

Eventually, you should settle on an amount you can set aside per month for your savings. That amount is your new top priority when payday arrives.

Step 3: Test Your New Savings Plan

Now, just wait until pay day rolls around. Once you get your check, immediately transfer your chosen sum to your savings.

Congrats! You’ve now “paid yourself first.”

Three Budget Tools to Reach Goals Fast

  1. Truebill – this is a free tool used to track your spending, start a savings account but most important, cancel unwanted subscriptions. Click here to create your free account with Truebill.
  2. Bill Shark – this is a free tool that helps you negotiate your bills freeing up more money for your savings goal. Save 25% on monthly bills in 2 minutes with Billshark.
  3. Super Loan – because I had 14 student loan payments, a truck payment and a rent payment, I needed a way to consolidate into one low payment. You can get up to $100,000 at a low interest rate. I was surprised at how fast this took.

Now, look what happened: my bills were negotiated at a lower rate, Truebill cancelled unwanted subscriptions, and I now have one low payment. That doubled the amount I have for saving.

It’s these little tricks you can do to get ahead. Because it’s all online, it really is a “never leave the house” strategy.

Does Pay Yourself First Really Work?

The Pros of Pay Yourself First Budgeting Method

As you can imagine, the chief benefit of the PYF method is the savings. Using this method, you will be able to grow your savings in a sustainable manner. Better yet, you’ll prioritize those savings and your long-term goals.

Also, this method can help you better minimize your monthly expenses. Because you are “paying yourself” first, you’ll always start with less money each month. This, in turn, can encourage you to be more thrifty and focus on the essentials.

You’ll also find that this method plays well with automated banking. After all, many bank accounts allow for automatic transfers between sub-accounts on a scheduled basis.

This can make “pay yourself” a no-hassle affair.

The Cons of Pay Yourself First

“Paying yourself first” comes with some drawbacks, naturally. The first among these is the risk for debt.

To be specific, prioritizing your savings may make it harder to make ends meet. For many folks, that means taking on more debt over time.

Unless you have a plan to manage that debt, this risk can grow as your budget plan continues. That’s why I recommend being resourceful. Take advantage of the Super Loan.

Also, this system can be hard to grasp for those without budgeting experience. That’s where your savings app & negotiating bill services will help out.

Conclusion – Is Pay Yourself First Right for Me?

At first, you may not feel comfortable with the “Pay Yourself First” budget system. That’s only natural, given its unique inversion of standard budget plans.

But over time, you’ll really start to see why this method is favored by long-term savers. Whether you plan to retire soon or just want an emergency fun, this budgeting method can really pay dividends.

Give it a try and let me know how it goes. Even if you only use it for a short time, your savings account will start to grow. And if you need to make more money, check out these 80+ Ways to Make Extra Money.

Make sure you bookmark this page as I’ll be updating it as often as I can to keep you informed on the “Pay Yourself First” budget method. If you need to get out of debt, check out out guide: How to Get Out of Debt in 2020

If you know anyone looking for information on the “Pay Yourself First” budget method, please share this page with them.

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