Pay Yourself First: The Secret to Saving More Money

If you are like me, you have struggled a lot with saving. After you get paid, the first thing you do is pay your bills and expenses. Then you spend on things like entertainment, clothes or even help out a friend in need.

At the end of the month, you find that you barely have enough money left to save.

The next month, you promise yourself that you will save more. But the cycle ends up repeating itself. And at the end of the year, when you do an analysis of your finances, you realise you didn’t save much.

Following this cycle presents a big problem. You can’t achieve true financial freedom without having enough savings to help cushion you from what life throws your way.

This is true not matter how much money you earn. If you don’t have a solid foundation to protect you, then one or two unexpected expenses can leave you in debt.

The question is, how does someone stop this cycle?

Pay yourself first strategy

While there are many strategies that can help you increase your savings, one of the best is the paying yourself first strategy.

The strategy is simple. Save your money as soon as you get paid instead of saving whatever remains after paying all your bills. For you, this will mean that your budget revolves around what is left after you save not before.

To understand how effective it is, let’s use an example.

Let’s assume you earn KSh 30,000 and your goal is to save 20% of your income which is KSh 6,000 per month. When you get paid, you immediately put aside the KSh 6,000 as your savings. This leaves you with KSh 24,000 to spend.

If you did this consistently every month for a whole year, you would have saved KSh 72,000.

Now compare that with the strategy that lots of people use to save.

After receiving the KSh 30,000, you spend most of the money paying bills, expenses. If you get lucky, you may save an average of KSh 2,000 a month from what remains. By the end of the year you would have saved KSh 24,000.

As you can see, the difference can be quite significant.

How to get started.

Getting started with the pay yourself first strategy is quite easy. A simple way to start is by going to your bank and creating a standing order. The standing order, should be to your savings or low risk investment account.

Now I know creating a standing order is an extra expense. But if you struggle with saving then it’s worth it in the long run. This is because if the money leaves your account before you have a chance to spend it, then you are likely to hit your savings goals each month.

Final note

The pay yourself first strategy is a great way to help you build your emergency fund and a create a financial cushion for those unexpected expenses that come up.

It may not be easy for some to switch to this strategy especially if you are used to the one I mentioned earlier. But if you hang in there and be consistent, you will be thankful that you made the switch.