Pay yourself first · RetireReady Academy

Concept

The most reliable way to save is to do it first. Pay yourself first means moving money to savings as soon as you're paid, and living on what's left, instead of saving whatever happens to be left at the end of the month. (There usually isn't much.)

The best version is automatic: a 401(k) deferral taken from your paycheck, and a transfer to savings scheduled for the day after payday. Automatic saving works because it doesn't depend on willpower.

In this course, your savings pool is the money left each month after your budget:

savings pool = monthly take-home pay − monthly budget

Your budget is a list of lines, each with a monthly amount and a type:

Need: housing, utilities, groceries, insurance, basic transportation, medical costs
Want: dining out, entertainment, travel, subscriptions, upgrades
Debt payment: loans and minimum card payments, with an end date if there is one

The type matters. Needs and wants rise with inflation each year. Debt payments stay fixed until they end, as real loan payments do. And when a debt ends, its payment moves into your savings pool automatically.

Worked example

Linda, 58

Linda's take-home is $5,875 a month and her budget is $4,650, so her savings pool is $1,225 a month. On top of that, $1,100 a month goes into her 401(k) from her paycheck. She has no debt payments; her mortgage is paid off.

Your numbers, and the effect

Enter your budget, line by line. Mark each line as a need, a want or a debt payment, and give any loan its end month. Start with the big lines; small things can be grouped ("Everything else").

You're in the free preview, practicing with Maya's numbers. Create an account to save a plan.

Your budget

Line	Per month	Type	Ends (optional)

Needs and wants rise with inflation. Debt payments stay fixed until they end, then that money moves into your savings pool.

$3,900

Take-home per month

$3,350

Budget per month

$550

Savings pool per month

Your budget compared with 50/30/20

50/30/20 is a starting reference, not a rule: about 50% of take-home to needs, 30% to wants and 20% to savings and extra debt payments. You're at 59% needs, 18% wants and 14% savings, plus 9% on debt payments.

Lines that end

Student loan ends 12/2034: $350/month then moves into your savings pool.

The chart compares your budget with the 50/30/20 guideline. The gold box is your savings pool: the fuel for everything that follows.

Checkpoint

Answer at least 70% correctly to unlock the next lesson. Retakes are unlimited, and every answer is explained.

Question 1

What does 'pay yourself first' mean?

Spend on yourself before paying bills. Move savings out as soon as you're paid, ideally automatically, before spending on anything else. Pay off all debts before saving anything.

It's about the order money moves in, not the amount.

Question 2

Maya's take-home is $3,900 a month and her budget is $3,350. What is her savings pool?

$3,900 $7,250 $550

Question 3

Your budget is larger than your take-home pay. What does the plan do?

Draws the gap from your savings, and shows any amount savings can't cover as 'unfunded budget'. Ignores it. Lowers your budget automatically.

Common questions

How do I find out what I really spend?

Look at two or three months of bank and card statements and group the spending into lines like housing, groceries, transportation, insurance, debt payments and fun. Most people underestimate spending by 10% to 20% on the first try, so round up.

Should my 401(k) deferral be in my budget?

No. Your 401(k) comes out before your take-home pay arrives, so it's already handled. Your budget covers only money spent from take-home pay.

How often should I update my budget?

Check it monthly for the first three months, then quarterly, and whenever your life changes: a move, a new job, a new child, a loan paid off.

Still stuck? Search the help center or the glossary.