DIY Budget Planning For Success With Money
Managing money wisely is critical to financial success, and one of the simplest ways to do this is by adopting a “pay yourself first” approach.
So, what exactly does it mean to pay yourself first?
Pay yourself first is a budgeting method that prioritizes saving and investing before spending money on anything else. Instead of saving what’s left over at the end of the month (often nothing), you first take a set amount from your income and put it toward your future.
This financial habit helps build savings and investments automatically without relying on discipline to save at the end of the month. The pay-yourself-first method ensures that your financial goals are met before other expenses.
With that background information in mind, let’s walk through 7 easy steps to implement a pay-yourself-first budget. Then, you can start building a solid financial foundation for your future.
How To Pay Yourself First In 7 Easy Steps
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
1. Track Your Spending For At Least One Month
Before setting up any budget, knowing where your money is currently going is crucial.
For at least one month, track every expense. Whether you use an app, a spreadsheet, or a legal pad, note down everything you spend money on. Include your rent, mortgage, household bills, groceries, gasoline, dining out, entertainment, and other expenses.
Tracking your spending gives you a clear picture of your habits and shows where you might be overspending. Personal finance experts often say this activity is eye-opening and the first step to financial literacy.
After tracking your spending, you will see patterns blocking your ability to save. I started tracking my spending with a spreadsheet in my early 20s and still do so monthly.
Dig Deeper – How To Live Below Your Means
2. Create a Budget and Pay Yourself First
Once you know where your money is going, it’s time to create a budget.
Create categories for all your expenses from step #1. Use your actual spending to forecast future months. However, be realistic with your estimates.
Organizing your bills and income helps keep everything in check, whether using a DIY budget planner or an online tool. If you don’t plan for your money, it’s much easier to waste it.
Most importantly, your budget must include a savings category at the top. This budget line item represents the amount you’ll pay yourself before covering your expenses.
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3. Identify Your Savings Goals
Saving to save might not feel very motivating, so setting specific savings goals is essential. Your savings goals can include building an emergency fund, saving for a down payment on a house, investing in a retirement account, or planning a dream vacation.
Identifying your goals will give you a reason to pay yourself first each month.
Once you know what you’re working toward, you will likely stick with a pay-yourself-first budget. This will also help you understand how much you need to save and how long it will take to reach your goals.
4. Determine the Ideal Percentage to Pay Yourself First
There’s no one-size-fits-all rule for how much you should pay yourself first. However, many experts recommend starting with at least 10-20% of your income.
If 10-20% feels too high, start with what you can manage and increase it over time as you get used to this method.
If you’re serious about financial success, consider increasing your contributions whenever you get a raise or bonus. This way, lifestyle inflation doesn’t creep in, and your savings grow faster than your expenses.
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5. Automate Your Savings
One of the easiest ways to stick to paying yourself first is to automate it.
Set up automatic monthly transfers from your checking account to your savings or investment accounts. If you have a job with direct deposit, ask if your employer can split your paycheck between your checking account and a separate savings account.
Automation takes the effort out of saving, ensuring the money is moved before you even have a chance to spend it. This step is a game-changer because it represents the core of the pay yourself first philosophy.
Once you build a little savings, consider investing for more significant long-term returns. Learning to invest was a game-changer for my finances. Here’s a great place to get started learning how to invest:
The Financial Freedom Investing Course
6. Spend the Rest Of Your Money As You Desire
Once you’ve paid yourself first, feel free to spend the rest of your money on other needs and wants without guilt. You’ve already taken care of your future by saving, so whatever is left can be used for living expenses, discretionary spending, and fun.
In my early 20s, when money was tight, this method was a game changer. Knowing my financial goals were already met, I could go out with my friends and spend what little money I had leftover guilt-free.
Thus, you don’t have to worry about cutting back on living life. By focusing on paying yourself first, you can enjoy knowing you’re building a secure financial future.
7. Make Adjustments to Your Budget and Spending When Required
Budgeting isn’t set in stone. Instead, budgeting is an evolving process. Adjust how much you pay yourself first as your life circumstances change because of a new job, a raise, or unexpected expenses.
If you’re spending too much, make the necessary changes. On the flip side, if you’re consistently able to save more, consider increasing the percentage you allocate to your pay-yourself-first plan.
Thus, revisit your budget every few months to ensure it’s still working for you. I still review and prepare my budget monthly.
Must read – How To Stick To Your Budget
Pay Yourself First To Achieve Your Money Goals – Wrap-Up
By implementing a pay-yourself-first budget, you’re taking a proactive approach toward financial security and long-term success.
This method encourages you to prioritize saving and investing for your future before spending on other expenses. It’s a powerful way to ensure that you’re always working toward securing your financial future.
Work on perfecting your process, which should only take an hour or two monthly. Remember, it’s not about being perfect. Paying yourself first is about making consistent progress and adjusting as needed.
Good luck with your finances, and thanks for reading. Before you leave, PIN IT:
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.