The inestimable advantages of paying yourself first


Paying yourself first is something that I’ve mentioned before.

But I haven’t yet fully explained its power to accelerate your journey to financial freedom.

Paying yourself first is what it says on the tin. You pay yourself before you pay the supermarket, the bank, the utility companies, the breweries, cigarette companies, gift shops, Premier League Football Clubs, betting shops, tattoo parlours, strip clubs and the tanning salon [delete as applicable].

If your salary hits your account at the end of the month…then, the next day, you sweep a chunk of it from your current (spending) account to your savings (freedom) account or online stockbroker. Ideally this should all happen on autopilot so you can “set it and forget it”.

If you are young / broke / at the start of the journey, the money that you pay yourself first goes as follows:

  1. repaying loan sharks (e.g. Frankie the Fist)
  2. clearing other expensive debt (e.g. credit cards); then
  3. building a cash emergency fund (e.g. 6m spending); then
  4. into wealth generating assets (eg Vanguard funds).

How much of your income should you be paying yourself first? As much as possible! At a 50% (after-tax) savings rate it takes 18 or 19 years until you have enough not to have to work again. Your percentage savings rate is far more important than the rate you get on your investments in terms of the time to get to financial independence.

What if you can’t yet afford to save 30, 40 or 50% of your net income? No problem. When you’re just getting started, the amounts don’t matter.

What matters is that you are getting into this habit. Habits are incredibly powerful things. Let’s be honest, most of the time we are on autopilot.  So if you have your autopilot set to “saving”, you will get rich(er)…its inevitable.

We all start with nothing. If you are broke you can start by paying yourself first…even if its only £1 a month. Then increase the amount as you get your income up and your spending down. If you can keep doubling the amount saved each month, after 12 months you will be saving £2,048 per month.

Again, if you’re young / broke / at the start of the journey and that point seems a long way off, you need to know that you’re capable of much more than you can currently imagine. When I started out on £12,500 a year, saving £2,048 a month would have seemed impossible to me as well. But it happened.

No one taught us properly about money. So there’s this idea out there that you should save whatever is left at the end of the month. Can you see the problem here?  Most people don’t have anything left at the end of the month.

That’s partly because we’ve all been brainwashed into believing that spending = happiness and therefore if we’ve left any money unspent then we’re leaving happiness on the table. As I may have mentioned before, that’s horseshit.

The natural tendency is to spend until there’s nothing left, so by paying ourselves first we create an artificial environment of scarcity.  People tend to keep one eye on their current account balance and adjust their spending to what’s left.  Paying yourself first brings forward the point when we are “forced” to turn down the spending.

The Escape Artist does not advocate a policy of minimising all spending.  No, I suggest you think like you are Chief Financial Officer (CFO) of your own life.


A good CFO understands the difference between expenses and investments.

Expenses are bad things and need to be minimised. The money that you pay for your electricity or water or gas or council tax is an expense. The less you pay, the better.

Investments on the other hand are good things. They give you a positive return. If you buy £1,000 of Vanguard fund that pays £30 of dividend income and goes up by £50 then your total return is £80. Your return on investment is 8% per year.

You should spend freely on things that are good investments.

Yes, investing in wealth generating assets such as shares or property counts as investing. But here are some other things that look like expenses but are actually investments:

  • books (esp self development books)
  • health spending (e.g. physiotherapy, pilates, strength training)
  • useful training (e.g. to become a plumber)
  • other useful education / coaching / certifications
  • loft extension / basement conversion
  • a bike you use for commuting / getting around

Here are some things that look like investment but are actually expenses:

  • clown degrees (e.g. gender studies)
  • fitting out your house (e.g. soft furnishings for the nursery) or garden (e.g. new fishing rod for garden gnomes)
  • a subscription to FatFighters
  • new car purchases (new cars depreciate insanely fast)

Paying yourself first is not just a financial technique, its a state of mind.

You create your own reality. I don’t mean you can just magic up money with your mind.  But with the right mindset, you can change your world and your financial situation via your actions.

Remember that there are 2 types of reality:

1. Objective reality

This reality is independent of what we think. Like the laws of physics : gravity for example. If you jump out of a plane without a parachute, gravity pulls you downwards.

If you are falling from an aeroplane with no parachute, you can think positively. You can visualise yourself flying.  You can flap your arms. You can Reach For The Stars all you want…but you are still gonna end up the same way.

2. Subjective reality

Subjective reality is shaped by what’s in our minds: our beliefs, expectations and perceptions.

This is the version of reality that operates in most of our life…and that includes personal finance (as well as work, relationships, health and fitness). In personal finance your thoughts create your reality.

If you think that saving is putting yourself first, then you’re more likely to save. If you believe that investing in the stockmarket is easy (it is) you’re more likely to give it a shot. If you believe its possible to get to financial independence, you’re much more likely to do what it takes.

Paying yourself first is a way of reminding yourself that you are more important than sofas, plasma screen TVs, cars, hotels, alcoholic beverages and ready meals.  People should be more important than stuff. And you are a person too.

When people come to my house they often ask me if I’d like them to take their shoes off? To which I say: thank you but no need! The reason is that people are more important than flooring materials.

Now you may think that its obvious that people should be more important than stuff. But you should pay more attention to what people actually do in life rather than what they say.  Actions speak louder than words.

Every time you buy stuff, you extend your time in The Prison Camp.  So every time someone buys *SHINY NEW THING* they are prioritising the thing…certainly before their freedom and perhaps before their own good.

Every time you see a fat person buying a packet of Doritos, that person just prioritised Doritos before their own health.  That is not paying yourself first or putting yourself first…even if it is being greedy.

In this sense, a lot of people need to start putting themselves first, before the interests of the Mega-Corporations that make crap stuff.  Beware the the propaganda of The Prison Camp. Despite what they say in the adverts, companies are not your friends.

We really need to get smarter about what is enlightened self-interest versus what is crass selfishness.  Here’s Scott Adams on the subject:

During your journey to success you will find yourself continually trying to balance your own needs with the needs of others. You will always wonder if you are being too selfish or not selfish enough…When it comes to the topic of generosity, there are three kinds of people in the world:

  1. Selfish
  2. Stupid
  3. Burden on others

That’s the entire list. Your best option is to be selfish, because being stupid or a burden on society won’t help anyone. Society hopes you will handle your selfishness with some grace and compassion.  If you do selfishness right, you automatically become a net benefit to society.

I’m not going to tell you to be selfish because most people associate that word either with hurting others or being crass and I don’t want that.

Apply own mask first

But I do want you to do what they say in airline safety briefings and apply your own oxygen mask before helping others.

To put it another way, I’ll use a phrase that I stole from someone smart. I suggest that you make yourself your own mental point of origin.

Paying yourself first is a gateway habit.

It is a gateway to saving more, sure. But its more than that. Its a gateway towards thinking about what really brings happiness. Its a gateway towards enlightened self-interest.  It’s a gateway towards helping the environment.

And its a gateway towards making yourself your own mental point of origin.

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  1. Fully agree with this! Since finding the world of FIRE my whole outlook on life has changed. It really makes you question what you want out of life and what actually makes you happy. It’s so easy to just plod along in your routine because that’s what society expects! What you would do with unlimited free time is a whole new ball game!

    Of course there’s always room for improvement, but life is already looking significantly more exciting!


    Mr Way

  2. paullypips · · Reply

    A great big special thank-you for the term, “clown degrees” – I will have to remember that one. It made me laugh. An excellent article as usual.

  3. good advice but I won’t choose to follow it. I get paid monthly and don’t spend/invest everything that I have that month. I don’t have to wait until payday before I buy/invest/spend/splurge – but that’s me.
    Many people don’t know how to budget and when there is no shortage of things to spend money on (your material needs can never be sated), you’ll always run out of money.
    If you are cheap/frugal/stingy and keep spending low, you can have a savings rate and save they money and invest it.
    But the spenders of this world are not going to change what they do so easily (try telling a smoker the benefits of stopping)

  4. Many employers do pension salary sacrifice so you can pay yourself first before it even hits your bank account. You just need to wack the percentage up above the government mandated minimum level if you can.

    1. Barn Owl · · Reply

      Very good point. This is a MUCH more tax efficient way to save than from after tax earnings. Especially if your employer gives you their national insurance back and especially if you are a higher earner.

  5. Poixekar · · Reply

    I couldnt have said it better. “No one taught us properly about money. ” i think sums up the issue most people in the world are facing. Thanks again for putting this so succinctly.

  6. i tell people the same regarding their health and fitness: pay yourself first with your time spent. if you have to decide between that 30 minute period to work out of something else less important make the selfish healthy choice. most people can fin 30-40 minutes to better their bodies several times a week without the usual excuses.

    speaking of excuses, there was a social medial discussion in which a medical doctor woman-splained to me that she spent the past blah blah blah years learning blah blah blah and there was just no time to learn investing. y’know my response? okay. it’s your future. but the fact is that it doesn’t take 1200 hours of study to start investing. what a bunch of babies we’re raising here in the US. cheers!

  7. Laertes · · Reply

    “Every time you buy stuff, you extend your time in The Prison Camp. So every time someone buys *SHINY NEW THING* they are prioritising the thing…certainly before their freedom and perhaps before their own good”
    How true, but it makes me sad. Last week I met one friend who came with a shiny new BMW. What did I say? Nothing, I have already learnt that it is useless to say anything, or even worse, they may think you are just jealous.
    I have tried to show my family and closest friends some simple articles like this one but nobody has changed a bit their money habits. We have so ingrained the belief of spending=happinnes (and status, I’d say) that it takes some kind of cathartic event to shatter it.
    In my own case I thought I’ve been most of my life a moderate spender, so I had money saved. But it was not invested and it was not even close to what I’d have if I had known earlier what I know now. My own cathartic event was one day that I was stuck in a traffic jam for 2 hours on my commute to work (normal travel time 20-30 min). When I got back home I started looking on the internet and I discovered this wonderful community with money mustache, the escape artist and many more.
    This was around last December. How my life has changed sice that day is amazing. I have not only started investing in passive index funds, paying myself first and decided, for example, not to buy a new car ever again but also changed my eating habits, started doing regular exercise following the books of a great guy I discovered also via this community and many other crazy ideas that are roaming in my head.
    So I have to thank everybody who puts webs like this one, and oddly enough, I have also to thank that traffic jam.

  8. […] TEA on paying yourself first (29) […]

  9. Hi, hoping someone with more investment knowledge could advise if the following set up is suitable for a long term investment strategy, for someone starting out investing in their early thirties? Thanks for any advice!!
    One third – LifeStrategy® 100% Equity Fund – Accumulation
    One third – FTSE All-World High Dividend Yield (VHYL)
    One third – U.S. Equity Index Fund – Accumulation

  10. […] The inestimable advantages of paying yourself first by The Escape Artist on The Escape Artist Website. […]

  11. […] whether that’s via your employer or via a SIPP if you’re self-employed. Next, automatically pay yourself first from your paycheck each month by investing simply, via standing order, into a […]

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