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What does it mean to pay yourself first?

You may have heard the phrase “pay yourself first” and wondered what it means and why it’s important. Paying yourself first simply refers to contributing to your savings accounts (via direct deposits or automatic transfers) before spending your money on any unnecessary or luxury purchases.

Paying yourself first is an effective strategy for saving money that can then be used to improve your financial situation. Paying yourself first can reduce the temptation to spend your money, especially when you see your savings account balance growing.
At Credit Union of Southern California (CU SoCal), we make opening a savings account easy!
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgages, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.

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What is paying yourself first important?

Paying yourself first means not spending your money on impulse purchases or on clothes and other items you don’t need, and instead, depositing the money into a savings account.
Saving money is important because everyone needs an emergency fund to cover the bills in times of illness or job loss. Building a sizeable savings account can not only help pay for unexpected expenses, but it’s also important for attaining long-term financial goals like buying a house and creating a financially secure retirement.

How does paying yourself first work?

The first step to take toward paying yourself first is opening a savings account.

The next step is to automate your savings. An automatic savings program is a savings account you create into which you make automatic deposits of a fixed amount of money at specified intervals. For example, you can set up automatic transfers of $100 from your checking account to your savings account on the first day of each month.
Automating your savings removes the temptation to spend outside of your budget, as automatic savings is now something more akin to paying a recurring bill each month. The great part is you’re paying yourself and you can watch your account balance grow!
Let’s take a closer look at the steps for paying yourself first:
1. Create a budget. Start by adding up your monthly earnings and deducting your monthly expenses. Of the amount that remains, how much can you afford to place into a savings account, and can you commit to keeping the money there?
2. Set your goals. Setting financial goals is a key to financial security. The sooner you set a savings goal, the sooner you’ll reach your goal, whether it’s to save for a new car, save money for a down payment on a home, make home renovations, pay for a wedding, Setting goals will help you stay committed to your goals.
3. Pay off high-interest debt. Some savings accounts pay interest on the account balance, but the interest charged on an outstanding credit card balance will far outweigh the interest earned on savings. Before you put money aside in savings, pay off any high-interest debt, such as credit cards and student loans.
4. Set up direct deposit or account transfers. One way to make saving money easy is to have a monthly amount automatically transferred into savings each month. This can be done through direct deposit into your account features or by going into your account settings and selecting “account transfers” of a specific amount each month.
5. Monitor your progress and adjust as needed. Be sure to monitor your checking and savings accounts to make sure you have the money you need each month to pay your bills in full, so as not to accrue debt in the effort to save money. You may realize that you’re able to put more into savings, or you may need to reduce your savings to have a better bill-pay cushion. Don’t worry. All efforts to save money are a great step forward, no matter how much you contribute.

Benefits of paying yourself first:

  1. Reduce impulsive spending. Having money direct deposited from your earnings into a savings account can reduce the likelihood that you’ll spend the money somewhere.
  2. Create an emergency fund. Financial experts recommend that individuals have enough money in their emergency fund to cover three to six months' worth of living expenses. If you do not have emergency funds saved you may need to apply for an emergency loan, which will cost you to pay back the loan with interest.
  3. Save for retirement. It’s never too soon to start saving for retirement. Consider opening a traditional IRA or Roth IRA account.
  4. Save for a major purchase. Paying yourself first is a great way to save money to pay for a wedding, a new car, or a down payment on a house.

What kind of savings account should I use?

There are many types of savings plans offered by credit unions, banks, and online financial institutions. Here is an overview of accounts into which you can pay yourself first:
Traditional savings account. A savings account is typically used for managing funds that are less likely to be used for paying bills. People deposit into a savings account for any number of reasons, but the goals is almost always for long-term savings for a special purchase, such as a home or a new car. It’s smart to have money saved in case of a job loss or medical emergency.
Money market. A money market account is a type of savings account that earns interest on the account balance. Most money market accounts come with a debit card and checks, to make financial transactions easier and more convenient.
IRA. An IRA is a type of individual retirement account, and includes traditional IRAs and Roth IRAs. There are several differences between Roth and Traditional IRAs, including age and income limits, when contributions can be made, when distributions (withdrawals) can be taken, and how earnings are taxed.
401(k). A 401(k) is an employer-sponsored retirement savings plan that lets employees contribute a portion of their pre-tax wages to an individual retirement account. Some employers will “match” its employees’ contributions to their account. For example, if an employee contributes five percent of their monthly pay to a 401(k), the employer will also contribute five percent to that individual’s account. There are unique differences between a Roth IRA vs. a 401(k).

Is paying yourself first always a good idea?

Paying yourself first is generally a good idea. Saving for retirement or creating an emergency fund is always a good idea, however, there are some factors to consider. For example, if you have a large balance on a high-interest credit card, that balance should be paid off before you start paying yourself. High-interest debt will eat away at any interest you earn on a savings account.
Additionally, you should be careful to not put so much into your savings that you won’t have any money to enjoy a few discretionary expenditures each month, such as eating out or going to the movies. While saving for the future is important, so is enjoying life. The goal is to reach a balance that lets you reach all your financial and personal goals.

Why savvy consumers choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

Get Started on Your Savings Account Today!


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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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