Save Your Money By Paying Yourself Last

by Guest Blogger on 2009-07-0320

I am a steadfast believer of the Pay Yourself First strategy, but today, I wanted to publish the ideas and thoughts of someone with some unconventional, alternative viewpoints about the saving process. Earlier, we had a chance to discuss the money saving advice of Rob Bennett, a personal finance writer (theorist?). Rob wanted to follow up on the saving concept he’s dubbed “Paying Yourself Last” and tells us why it’s a better long term strategy for savers. Do you agree with him? Herewith are his words:

Thoughts On Paying Yourself First

The most popular saving advice of all time is: Pay Yourself First. It does work. There are millions of people who swear by it. There are millions who were never able to save until they adopted a “Pay Yourself First” strategy. If you don’t save at all today, you might want to try this popular approach that has worked for so many others.

Paying Yourself First is mindless saving. But I don’t mean that as a dig. The reason why this strategy works is precisely because it is mindless. The idea is to save a specified percentage of your income (usually 10 percent) automatically, without thinking about it. For Pay Yourself First savers, saving becomes the default money management option. And it really does work for millions.

save your money
Image by The New York Times.

But I see a downside. My concern lies in its long-term effects. Here’s where I ask a few questions starting with “Why?”

Why is mindlessness such a great thing in the saving arena when it is generally viewed as a bad thing in most other areas of life endeavor?

I believe that the reason is that most of us have negative mental associations tied to saving. We think of savers as responsible but boring and even somewhat small-minded (non-generous) people [yeah, just check this post about the cheapest people out there]. We know we have to save. But we don’t really like the idea all that much. So we force ourselves. We save automatically because we cannot bring ourselves to do it any other way.

I believe that we need to encourage a more uplifting view of the saving experience. Saving is wonderful. Saving brings us financial freedom. Who doesn’t want to be more free? We shouldn’t have to force ourselves to save. We should be excited about it, we should be thrilled about it.

The reason why we are not is that even great savers have fallen prey to the conventional idea that saving is boring. When we save unthinkingly, most of the time we are also agreeing to the idea that saving is painful, not fun, and that it needs to be forced. Does it? I don’t think so.

Save Your Money By Paying Yourself Last

I favor an approach to saving that I call “Passion Saving.” The idea is never to save unthinkingly, never to save automatically, never to Pay Yourself First but instead always to Pay Yourself Last.

To Pay Yourself Last is to decide on your savings rate after comparing the value proposition associated with spending vs saving percentages of your income, and to elect to save only when you know it will offer you greater life enhancement. Passion Savers acknowledge that both spending and saving can both be wonderful choices. Pay Yourself Last savers often choose saving without having to force themselves to do so.

The Pay Yourself First strategy is a good way to get started saving if you have never before been able to save. The Pay Yourself Last strategy can take you to more exciting places. It’s a more positive approach to money management and one that can take you to an appreciation of the benefits of saving not possible for those who automatically put aside a percentage of their income. Paying Yourself Last allows you to think through what saving and spending can add to your life as you work to accomplish your most important life goals.

Rob Bennett is the author of A Rich Life blog. The “RobCasts” section of his web site contains over 120 podcasts in which Rob describes the Valuation-Informed Indexing investing strategy, an approach to indexing that greatly reduces the risks of stock investing by having investors lower their stock allocations at times of insanely dangerous valuations.

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 20 comments… read them below or add one }

Mark Foo | July 3, 2009 at 6:18 pm

I love saving. I don’t think saving is painful. What’s painful to me is the lack of financial security. That is why I don’t save mindlessly or automatically. I do it manually, willingly, and happily. That is why I swear by ‘Pay Yourself First’. It has served me well so far.

But I appreciate this different school of thought. I always like learning about things that are unconventional, although I may not always adopt. Thanks so much for sharing!



Ray Johnson July 3, 2009 at 7:48 pm

I like your thinking. We should all pay ourselves first.

iwan setiawan July 4, 2009 at 12:50 am

woow it’s a fresh article for me, sometime i spend my money for nothing…by the way thanks for sharing my friend..:)

ObliviousInvestor July 4, 2009 at 5:00 am

Hi Rob. I’m “excited and thrilled” to pay myself first. Does that work? 😛

In all seriousness though, I absolutely agree: Saving for your goals/investing for your future shouldn’t have to be seen as drudgery or sacrifice.

Bulldog Gin Co. July 4, 2009 at 9:53 am

Pay yourself first, and then also pay yourself last by not spending everything.

Use a 3% compound interest rate on your return, and nothing else.

Manshu July 4, 2009 at 10:17 am

I like the idea and I have seen several people passionate about saving because the money saved adds up to the balance on your bank account.
Every month they save something and more than the fun of saving a few hundreds; it is seeing your bank balance touch 50k then 75k and then so on. That’s a nice feeling and a big motivator for a lot of people.

Mikael @ Retire Rich July 4, 2009 at 12:47 pm

Saving might be great for the “average” person but seriously do you want be just “average”? Saving will never have you become all you can be (no matter whether you pay your self first or last) but will merely leave you in a slightly better situation than the one that doesn’t save.

If being passive is your thing then saving will probably be a great solution but why not be active about your financial future?


AP July 4, 2009 at 5:47 pm

interesting method indeed, and I totally agree with your post. sometimes we often forget about ourselves, but paying ourselves first seems like a good idea too in order for us to manage our future plans 🙂

Talia July 4, 2009 at 10:03 pm

Interesting, I can see the benefits of both money saving strategies. When I think of it–which isn’t enough–I generally go with the pay yourself first concept but sometimes I feel it’s not the right thing to be doing, like when the cable bill is due and I only have a limited amount of funds. I haven’t really gone with the pay yourself last approach but I have my eye on a new gold necklace, so maybe I will try it and see how long it takes to be able to afford it 🙂

Cerita Silat July 5, 2009 at 5:29 am

I used to split between the money I should save and the one to spend for myself. I would happily spend ‘my payment’, but never touch the savings.

Rob Bennett July 6, 2009 at 11:49 am

I’m “excited and thrilled” to pay myself first. Does that work?


Any money strategy that leaves you excited and thrilled is a winner, in my estimation. I know you are kidding around a bit, Mike. But that really is the key. It’s the excitement you feel for a strategy that help you stick with it for the long term.


Rob Bennett July 6, 2009 at 11:54 am

I have my eye on a new gold necklace, so maybe I will try it and see how long it takes to be able to afford it

I think this is a great idea, Talia.

Some people would not even classify money saved to buy a necklace as saving. I think it qualifies. Saving for a necklace or any other luxury can show you how much saving effectively can add to your life (because it will permit you to own a more thrilling necklace than you could otherwise afford). You won’t forget that message after you have the necklace. The next time you consider saving for some other sort of goal, you will recall how much life enhancement you enjoyed as a result of the necklace-saving experience, and feel more confident about your ability to bring about positive change in your life through effective money management.


Bradley Jones July 6, 2009 at 7:31 pm

I would have to say that the Pay Yourself First concept is the easiest and most reasonable way to save.

The best way to start thinking more optimistic about saving is to start making long term goals. Whether it be saving for a house or just a new laptop, this can be a huge motivational factor in convincing yourself that saving is the way to go. You must sell the idea to yourself before selling it to others!

retireby35 July 7, 2009 at 7:26 pm

Lol, I agree with Bulldog’s method, I pay myself first and last.

I autopilot save about 20% in the beginning and then also save everything else that is left over. In the meantime I try to not spend a whole bunch of money so I’ll have more to save at the end.

TigerTom July 10, 2009 at 12:00 pm

I save so I have a cushion against harsh reality; nothing mindless about it. Save up enough to last you a year and a day off work, at least, and your peace of mind will improve tremenduously.

Slinky July 28, 2009 at 3:00 pm

I pay myself last, but not for the reasons Rob has said. I just save more doing it that way. Instead of saving a set amount and spending the rest, I spend a set amount (budget) and save the rest.

I don’t find the act of saving particularly exciting or passion inducing. I do get excited about what you can DO with saving though. I save because it brings me closer to my goals and my dreams. I want to save as much as I can while still living my life, because it gets me to my dreams faster.

The Apprentice August 4, 2009 at 8:55 am

This is a really neat idea. I think I could even save to different areas, for example instead of just saving for a car, I could also save up for my next shopping spree (and feel less guilty afterward!).

old car buff August 6, 2009 at 10:38 am

I’m with Bulldog – do it first AND last. I save for retirement on “autopilot” via payroll deduction and auto transfer and for escrow (tax, insurance) by direct deposit.

But for the goals that excite my ‘passion’ and for investing, I’m more like Slinky – not only do I budget, I also ‘sweep’ any unspent budgeted $ into the fund that is dedicated to my next ‘exciting’ goal. Sometimes that is travel, or a class I want to take, or some luxury good that I desire. Sometimes it is growing my net worth.

The best thing about ‘split’ savings is that you can have as many ‘back end’ goals as you like. Some may only be minimally funded now, but they are ‘on the list’ and dreaming becomes reality over time if you work at it.

Igor September 11, 2009 at 7:23 am

A very nice talking point, thanks. A lot of things, “pros” and “cons” can be said here. Personally I feel that saving on the “Principle: pay yourself first” can never be boring, at least it’s not more boring, then, say, regular going to laundry, or cooking (different for everyone). The fact is we basically save for the “Rainy days”, here I agree with Bradley, it’s better to set a long-term goal, some project, something that you can’t afford (not necessarily you will buy it in the end, but finally its some sort of motivation), then the process of saving will be much more pleasant.

I admit, perhaps, the principle “Pay yourself last” can really work, but when it goes about person with good spending habits, if he can control his money in- and outflows. Such high rollers as I will never be able to save any money by this method, there’ll always be some needs, necessities, and, having spent all your money, you’ll soothe yourself, that next time you’ll save some money, next time – the same and etc. I also feel concordant with Slinky, setting some hard-and-fast limit for your expenses, and the rest money would be saved, is a very good idea… Thanks for a nice post.

Chris September 18, 2011 at 6:07 pm

Great discussion! I agree with the several posters above who opt for doing both. Here’s the spin that I’d put on it:

There are different types of saving, and one that I recommend treating as completely non-negotiable is long term investment for retirement. Pay Yourself First is perfect for that, because (1) it’s out of your direct deposit account and into your 401k or IRA before you even have a chance to be tempted, and (2) it is consistent with a dollar-cost averaging philosophy of relatively constant dollar amounts regularly going in without regard to short-term market conditions. True “set it and forget it” simplicity.

But other types of saving – like saving up for a down payment on a house – takes place outside your 401k or IRA. Pay Yourself Last (I’d never heard it called that, but I like it!) is perfect for that, because it allows you to make a conscious choice. “Do I want to take this trip (or whatever), or do I want to be in a house sooner?” As long as you’re the one who’s choosing, and you make the choice consciously – you can’t go wrong.

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