Pay Yourself First Rule – How Much Should You Pay

The simple Pay Yourself First rule can change your financial future for the better and here we cover 3 ways specifically for UK residents to start implementing this vital habit for ensuring future financial prosperity.

We also cover what it’s so important to pay yourself first, including how much you should pay yourself.



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Why Should You Pay Yourself First?

Before going into the various ways of paying yourself first, I’ll quickly cover for those who are new to the concept,  why it’s so important to follow this simple money rule which could literally and quite substantially change your financial future for the better.

If there were only 2 financial rules I would encourage my kids to live by, they would be:

  • Pay yourself first
  • Don’t do debt (consumer debt)

These 2 rules alone should ensure a brighter financial future away from all the struggles and stresses of ever falling into interest-bearing and wealth sucking consumer debt.

The rules combined automatically restrict you to having to live within your means.  You won’t, therefore, be one of the many who spend every penny and more and ending up in debt.

What Does Pay Yourself First Mean?

Paying yourself first is as obvious as it sounds in that before you pay all your other bills and outgoings you put some money aside for yourself for the long term.

This money is not to be spent, it’s to build a strong financial base and a wealthier future you via a range of different savings and investments.

How Much Should you Pay Yourself First?

Firstly, the actual intention to start paying yourself first at all is the most important step.

How much you pay yourself may well depend on what is currently possible for you personally right now.

What percentage should you pay yourself first:

I would suggest the following:

  • 1-9% if money is tight
  • 10-20% as a general rule of thumb
  • +20%  if you are eager to build wealth and financial independence early

If money is currently extremely tight, try 1% of your income.  If you find you barely notice the impact on your budget, increase up to 2%.   Set yourself a goal to aim for paying yourself 10% over time.

10-20% is the ideal range.

30-40% might be possible at some stages in your life.  For example, perhaps you are fortunate enough to be living at home with your parents for a cheaper rate and your job income allows you to save a larger portion of income.   This kind of opportunity is one to take advantage of and could set you off to a great start in life.

Why Paying Yourself First is Important

Paying yourself first is one of the most important financial rules to follow if you wish to build wealth over time and plan for a comfortable, possibly even early retirement.

Actively committing to paying yourself first and making it an automatic is important otherwise, you are highly likely to succumb to what is known as “lifestyle creep” which is essentially a form of “Parkinson’s law” whereby your expenses naturally increase with your income.

This can result in always put off paying yourself first because you continually think it will be easier to save some time in the future when you are earning more.  Yet when that time comes, expenses will have naturally increased and you’ll keep putting it off.

Before you know it you’ll risk ending up with no money for retirement or having to put in a lot more in towards it many years later in order to catch up on missed contributions and huge amounts of lost growth.

It’s far better to make this a lifetime habit from a very earlier age.

Whether starting with pocket money or your first wages.

The earlier you start the better, but note also, it’s never too late to start if you haven’t already.

3 Ways to Pay Yourself First

Now you know the importance of paying yourself first, it’s time to put it into action and there are various ways you can do so.

You could choose one, or a mix of the options below.

You may also want to read this related post: Should I over the mortgage or pay into pension?

#1 Pay Yourself first into a Pension

Paying into a pension is one of the best ways to pay yourself first because there’s no way you can access the funds until retirement.  This guarantees the funds time to grow over time without them ever being called upon for something else.

The workplace pension is the ideal example of paying yourself first because your employer will typically deduct your contributions from your wages and you receive what’s left.

You, therefore, don’t miss or even notice what you never actually received.  Yet it is being put away for your future.

Contributions to the workplace pension work automatically and consistently every payday.  This is ideal.

Not only that, but you effectively get paid extra for paying yourself first via your pension as the government offers tax relief on personal and workplace contributions.

You can find out more about the automatic enrollment to the workplace pension here.

Paying into a pension is effectively a way of paying yourself first even before the government gets a chance to take their deductions for tax and national insurance.  Perfect.

Even if you don’t pay any income tax you can still qualify for tax relief up to a set amount each year.

#2 Pay Yourself First Into Savings

Another way to pay yourself first is to set up standing orders to savings accounts.

It’s best to do so in an out of sight out of mind manner so you are not tempted to spend the money.

Ideally, these aren’t savings with a plan to spend, these are savings for your long term future.

For example, you wouldn’t spend the savings on a new car.  An asset that is quickly going to depreciate over time and ultimately become worthless.   If you want a car, you save up for it separately out of what’s left of your budget after you have taken care of paying yourself.

If you don’t currently have one you would be wise to save a full emergency fund of 3-6 months of essential expenses.  This is a great financial foundation and will significantly reduce the likelihood of you ever needing to go into unwanted debt.

Once you have the emergency fund in place there are various other options for further savings.

Cash savings generally offer poor levels of return, particularly at the moment, but in part, it depends what you are saving for.

Options for Savings:

  • Savings Account
  • Fixed Interest Savings Account
  • Regular Saver Accounts
  • Premium Bonds
  • Cash Isa (tax-free interest)
  • Stocks and Shares ISA
  • Innovative finance ISAs
  • Lifetime ISA (LISA) for retirement

If you run a monthly budget, paying yourself first should be at the very top of the budget list of outgoings and setting up payments into one or more of the above options is a great idea.

#3 Pay Yourself First Into Property

Another way to pay yourself first is to start saving towards your own property and if you have one already start overpaying the mortgage on a regular basis (subject to terms and early repayment fees).

When it comes to overpaying your mortgage, one of the advantages over cash savings in a bank account is that the money is out of sight and out of mind.

You’ll also likely benefit more from this form of saving because mortgage rates are typically higher than savings rates.

Saving Towards a House Deposit

If you don’t yet own a property saving towards a house deposit could be deemed another way of paying yourself first.  You’ll have the equity in the house.

Just make sure when you buy your first home you can still cover all bills, including property maintenance, with what’s left after continuing to pay yourself first.

The mistake some people make is to stretch themselves too far on the mortgage, underestimate the bills, and end up with stagnant finances and unable to continue saving or paying themself first anymore.

Options if Saving For a House Deposit

Rather than saving for a house deposit in normal saving accounts, there are some much more favourable options.

  • Help to Buy ISA
  • Lifetime ISA for first-time property

ISA options for the first-time property buyer are ideal because as well as being tax-free they offer significant bonuses, currently 25%, but you can keep up to date with the latest via MSE.

You can keep up to date with the latest options via the MSE ISA Guide.

Overpay mortgage, even if a tiny amount

Make sure you have no early repayment fees


  • Pay your monthly payment every 4 weeks (will result in 13 payments a year instead of 12)
  • Set up a £5 a week Standing Order

Not only are you paying off the mortgage, but you’re also saving interest.

Frequently Asked Questions

What are the Benefits of Paying Yourself First?

There are many benefits to paying yourself first.

If you start early, you give your investments time to grow and over the long haul until retirement would have to put in a lot less money than someone else all other things being equal who starts putting into a pension 10 or 0 years later.

You will quickly build a solid personal financial foundation.

For instance, you can use the initial funds you accumulate to build an emergency fund. If you have an emergency fund and savings, it will help you avoid debt and extortionate interest payments.

You may want to focus your efforts on putting a deposit down on a house and possibly paying off the mortgage early and living a life with no mortgage repayments.

What you’ll find is, some of these options actually reward you for putting yourself first and saving.

For example, personal and workplace pension contributions reduce your tax, saving you 20-40%.

Some ISA’s reward you for saving, the Help to Buy ISA and LISA both offer bonuses up to 25%.  Way more than most people get on from other forms of savings.

Advantages of Paying Your Self First

  • Save an emergency fund
  • You’ll be able to afford a house deposit
  • Debt-free cheaper lifestyle (no interest payments)
  • You will build wealth over time


What Apps Help You Pay Yourself First?

Check out the best money-saving apps that take small amounts from your bank accounts based on your balance and spending.  The amounts are so small you barely notice.

The free to use Plum App is good because it automatically skims away savings from your accounts.  You can also set round-ups, so it rounds up spending on your bank account and saves it away.

Another good one is the Chip  App (review) which helps you set savings goals and then transfers small amounts from your bank account based on your spending and bank balance.    Some Chip Accounts offer a Pay Day Put Away feature where you set up a specific amount to be saved on pay day.

How to Increase How Much You Can Pay Yourself First?

To increase how much you can pay yourself overtime up to 10% consider looking for ways to decrease expenses or increase income.

Look to Make Savings

Reduce some bills, switch energy providers or downshift a few brand items on your shopping.

Perhaps cancel a subscription to Netflix or something similar.  You can always set the goal to reinstate it once you’ve reached a certain financial goal and it fits comfortably in your budget after paying yourself first.

You’d still have money left over to have a good time.

I reduced some of my bills by referring to friends and family if I know there was a good chance they would also make a saving:

Try to Make More Money

Another option is to try to increase your income.

I have covered lots of options in these kinds of posts outlined below, from which just combining a few options should help most people easily make £500+ a month.

How do you Make Paying Yourself First Automatic?

It’s important to make the act of paying yourself first an automatic habit, otherwise, it simply won’t be continued if you rely on yourself to do manually.

You want to make paying yourself first the automatic habit of a lifetime.

Tips for getting into the habit and making automatic

  • Opt into a workplace pension
  • Set up standing orders to saving accounts
  • Set up standing orders to overpay mortgage (subject to no early repayment fees)
  • Use automatic savings apps

Should you Pay Yourself First or Pay Off Debt?

I would consider paying off debt first because as soon as you repay the debt, those repayments can actually starting going towards paying yourself first even more than if you are trying to do both so at the same time.

If you are in debt, you are already committed to paying others first before yourself and likely being charged a much higher rate of interest that you would earn from savings or investments.

I personally like the Dave Ramsey advice of:

  • Build Emergency Fund (£500-£1000) (to prevent the need for more debt)
  • Pay Off Existing Debt with intensity
  • Build Full Funded Emergency fund
  • Invest 15% of income for Retirement

I think of paying off debt as starting paying yourself first, but you are just starting from behind and have some catching up to do.

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