Pay Yourself First: What It Means and How to Do It | Capital One (2024)

It’s possible to pay yourself first with the following steps:

1. Establish how much money to save—as a set dollar amount or a percentage of every paycheck—and what to save for.
2. Consider setting up an automatic transfer for some of each paycheck to go directly into a savings account, retirement account, investment or other savings vehicle.
3. Create a budget based on what funds will be available after paying yourself first. Monthly expenses and spending can be managed while still tucking money away.

Here are some common savings goals you might consider if you’re paying yourself first:

Retirement

While three-fourths of Americans have retirement savings, only 40% think their savings are on track, according to the Federal Reserve. Paying yourself first through a retirement account can help build that post-career income.

You might consider whether you’re eligible for work retirement plans, such as a 401(k) or a 457(b). If you’re not, a traditional IRA or a Roth IRA might be options. And those looking to retire early could consider additional ways to save.

Emergency fund

An emergency fund is meant to cover unexpected expenses like car repairs, medical bills or loss of income. The Consumer Financial Protection Bureau (CFPB) suggests keeping funds in “one of the safest places to put your money”—a bank or credit union.

An automatic transfer could help grow an emergency fund to reach a set goal. Some employers might offer a direct deposit option that can disperse paychecks into multiple accounts.

Saving for a major purchase

If there’s a vacation, a car, a mortgage, college tuition or another big purchase on the horizon, it might take time to save up for funding that purchase. The CFPB recommends setting a goal amount and then breaking it into steps—like saving $100 a month in gas by biking instead of driving or saving $50 a week by not buying takeout.

One of these steps could also be paying yourself first by putting a certain amount into a savings account every paycheck. By saving just $20 a week, that account could collect over $1,000 in a year.