Thread by @Overwoodng

How to Pay Yourself First - An OVERWOOD Thread

“Do not save what is left after spending; instead spend what is left after saving.”
―Warren Buffett

The best way to get ahead financially is to save. It’s another salary week, follow these steps to help you reach your future goals:

1. Add up your monthly income

Before paying yourself first, you need to figure out how much to pay yourself. Sum up your monthly cash inflow net of taxes. This first step ensures every income source contributes towards your financial goals.

2. Budget your expenses

Have a plan to spend. Your budget should tell you where your money should go. Prioritize needs over wants & ensure you always include variable expenses in your budget to avoid debt. Subtract monthly income from expenses to know how much money is leftover

3. Estimate your savings percentage

Decide how much to pay yourself based on your leftover amount each month. Define your short and long-term goals (repaying debt, saving, investing) and decide the percentage of your cash inflow you can afford to direct towards them.

4. Pay yourself first

Stash away a portion of your paycheck in accounts that earn you interest. Your savings should always be separated from your expense account. Automate the process by scheduling a recurring transfer so you can grow your savings & investments without effort.

5. Pay bills, then spend

After you’ve paid yourself, prioritize paying your bills and necessary living expenses. This process will help keep your spending on track each month. In the best-case scenario, you’ll still have money left over to save.

Paying yourself first helps you create a healthy financial habit of prioritizing saving over spending.

The trick is to save immediately you get paid rather than save what’s left at the end of the month. It allows you to direct every paycheck towards your savings & investments.