Most people save what's left over at the end of the month. The problem? There's never anything left over. The 'pay yourself first' method flips this on its head: save the moment you get paid, then live on the rest. It's not glamorous, it's not complicated, but it's the single most effective saving strategy there is.
Why It Works
Humans are terrible at saving money we can see in our current account. It feels available, so we spend it. By moving savings out instantly — before you even check your balance — you remove the temptation entirely. Your brain adjusts to the lower number in your current account and spends accordingly. This is backed by behavioural economics. Richard Thaler's concept of 'mental accounting' shows that people spend differently depending on which 'pot' money sits in. Money in savings feels like savings. Money in your current account feels like spending money.
How to Set It Up
Setting up 'pay yourself first' takes about 15 minutes:
- Step 1: Decide how much to save. Start with 10% of your take-home pay if you're unsure. Even 5% is a start.
- Step 2: Open a separate savings account. Not a pot in your current account — a separate account, ideally with a different bank. The friction of transferring it back helps prevent impulse raids.
- Step 3: Set up a standing order for payday. If you get paid on the 28th, set the transfer for the 28th (or the 1st if that's easier to remember).
- Step 4: Live on the rest. Don't adjust by transferring money back. If the month feels tight, you'll naturally cut unnecessary spending.
- Step 5: Increase by 1% every few months. You won't notice the difference, but your savings will grow significantly over time.
How Much Should You Pay Yourself?
There's no magic number. The right amount depends on your income, expenses, and goals. A good starting point is 10-20% of your take-home pay. If you're on a tight budget, start with whatever you can — even £25 per month builds a habit. The important thing is consistency, not size. Someone who saves £50 every month for 10 years will have more than someone who saves £500 once and then forgets about it. As your income grows or debts reduce, increase the percentage. Many people find they can comfortably save 20-30% once they've adjusted their lifestyle.
Where Your Money Should Go
Pay yourself first into the right accounts in this order of priority:
- Emergency fund first: Until you have 3-6 months of expenses saved, this is where your 'pay yourself first' money goes. Easy-access savings account.
- Employer pension match: If your employer matches pension contributions, contribute at least enough to get the full match. It's literally free money.
- High-interest debt: Once you have a starter emergency fund (£1,000), throw extra money at credit cards and overdrafts.
- ISA: Once debts are cleared and your emergency fund is solid, use your ISA allowance for tax-free growth.
- Additional pension: Especially if you're a higher-rate taxpayer — the tax relief is excellent.
Common Objections
The biggest objection is 'I can't afford to save.' But paying yourself first actually helps with this. When you save after spending, you never have enough. When you save first, you find ways to make it work. Your spending contracts to fill the available space. Other objections: 'What if I need the money mid-month?' — that's what your emergency fund is for. 'What if I get a bill I didn't expect?' — keep a small buffer in your current account for known upcoming costs. The first month or two might feel tight, but you'll adjust faster than you think.
FAQ
What if my income varies each month?
Set a minimum amount you can always afford (even £50), then manually top up on months where you earn more. Some people save a fixed percentage instead of a fixed amount — 10% of whatever comes in.
Does my workplace pension count as paying myself first?
Yes, technically. Salary sacrifice pensions are the ultimate 'pay yourself first' — the money comes out before you even see your payslip. But ideally, save on top of your pension too.
Should I pay myself first or pay off debt first?
Both. Build a small emergency fund (£500-£1,000), then split your 'pay yourself first' money between debt repayment and savings until the debt is cleared. Never save at 4% while paying 20% interest on a credit card.
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