What does 'paying yourself first' mean?

'Paying yourself first' refers to the practice of prioritizing savings by setting aside funds for savings or investments before addressing other expenses in your budget. This approach emphasizes the importance of treating savings as a non-negotiable expense, ensuring that you allocate money toward your financial goals, whether that be building an emergency fund, saving for a major purchase, or investing for retirement, before spending on discretionary items or even necessary bills.

This method is designed to foster a habit of saving and encourages individuals to put their long-term financial wellbeing ahead of immediate spending temptations. By doing so, it often leads to healthier financial management, as it can help you avoid overspending on non-essential items. Effective budgeting that includes 'paying yourself first' can create a more stable and secure financial future.