Paying Yourself is Just as Important as Paying Your Landlord
Reflections on the popular “pay yourself first” budget strategy.
Up until this past year, I was not investing in the stock market at all (except via my retirement account, which I knew basically nothing about also until recently). I was skeptical about investing at first (I don’t know anything about the stock market! The stock market is risky! The stock market is for men! The stock market is for wealthy people! I want my money where I can see it! Etc! Etc! Etc!). Because of these fears, I started slow. Over time, research and trust have shown me that NOT investing in the stock market is scarier and riskier than investing in it. Now, I contribute to the stock market regularly (my robo-advisor does this for me), on the first of each month, through a well-known savings strategy called “pay yourself first.”
I want to start this off with two disclaimers:
1) I recognize that it is a luxury to be able to save money each month. Many people are just trying to get by and pay bills for basic needs with their income. I started off ahead structurally because I am a white, American, cisgender woman who grew up upper middle class. Since I had little to no personal financial responsibilities in college, I graduated not only debt-free but with a small cushion or “emergency fund”.
2) I am NOT a financial advisor, I have no formal training in this space, and I am not authorized to give advice on how to manage your finances. I am literally a woman who realized she didn’t have her financial sh*t together, who felt systemically kept in the dark about money, and who is trying to learn as best she can how to get out of the dark.
In my first few years out of college, I was saving money, but not intentionally. I was living below my means (making more than I was spending) and renting out a tiny bedroom in a 6 bedroom apartment in a less expensive neighborhood, so after paying my bills each month I always had extra money. How much I couldn’t tell you (because I literally don’t know — at the time, I was so averse to understanding my financial picture that I would pay my credit card bill every other day to avoid knowing how much money I spent monthly). Once my lifestyle got a little more expensive (moved into a nicer apartment building, got a dog, got more into healthy eating + cooking, started traveling more, etc.), my old ways of “accidentally saving” weren’t going to cut it. I quickly realized that between rent and utilities and groceries and miscellaneous costs, I was spending most of my paycheck each month and, in some cases, starting to deplete the savings I had (accidentally) cultivated. There were rare months where I would save money, but that would only be the case if I happened to spend less that month. It was never intentional.
Now, I am very intentional about saving money. I treat paying myself a salary as seriously as I take paying my landlord rent.
What does this mean?
This means that on the first of every month, when I start my excel budgeting spreadsheet, I input the fixed costs for that month (give or take) and I subtract them from my monthly salary. Instead of waiting until the end of the month to see what I’ve spent and then figuring out how much I’ve (inadvertently) saved, I pay myself first. I literally have a row in my excel spreadsheet that says “salary to me — Betterment”. In the same way that I prioritize paying my rent and buying my metro card, I prioritize paying myself (into Betterment) and consider it a non-negotiable, fixed-cost (and to help hold me accountable, I have a recurring deposit set up). See an example spreadsheet below with some made up numbers where the monthly salary is $4000.
In the above example, this is what the spreadsheet would look like pre-populated on the first of the month (because what is filled in — “rent/utilities”, “transportation”, and “salary from me” — are fixed costs that mostly stay the same month to month). Here, the final number, $2,179, is what’s left for the month (in this budget example, for “food” and “fun”).
On the first of the month, I fill in all my known expenses and see what’s left (in theory, it’d be the same every month, give or take a little for things like utilities and extraneous transportation costs).
Using this method, your salary to yourself becomes taken as seriously as other expenses that you would never think to ignore. It’s not like you wait until the end of the month and “see what’s left” to pay your rent with — you make damn sure that you cover those bills BEFORE spending that money on other stuff! With savings, though, we often see it as “extra” or “leftover” instead of a priority. With this system, saving a certain amount of money each month becomes as routine and built in as paying your rent or buying a metro card.
I encourage setting up a recurring deposit (either to your retirement account, an independent taxable investment account — like Betterment or Ellevest, or to your (high-interest) savings account for an emergency fund). This way, you aren’t tempted to skip a month of savings. It’s automatic and it’s happening, so you better make it work! If you aren’t accustomed to saving money in this way, start slow, build the habit, and increase your savings over time.
