What is the budget for prioritizing self-care?

Definition and Examples

The pay yourself first budget works the way its name suggests: it funds your savings goals first, then allows you to spend the rest of your paycheck as you see fit. While there are many benefits to this type of budget, there are also drawbacks you should be aware of.

How Does a Pay Yourself First Budget Work?

When you pay yourself first, you determine an amount of money to set aside for your financial goals as soon as you receive your paycheck. This way, the funds are transferred directly to your savings accounts, IRA, 401(k), and any other investment accounts first, and then you are free to spend the remainder of your paycheck as you wish.

How to Create a Pay Yourself First Budget

Building a pay yourself first budget is a simple process consisting of five steps:

1. Create a budget

2. Determine your saving goals

3. Set up automatic transfers

4. Spend the remaining money on what you want

5. Make adjustments as needed

What is the Right Percentage to Pay Yourself?

When creating a pay yourself first budget, one of the first questions you might ask is “How much should I pay myself?” Most experts recommend saving at least 20% of your income each month. But in real life, things aren’t always that easy. You might be living paycheck to paycheck or be in a phase of saving 5% of your income — and that’s okay. Saving anything, even if it’s just a few dollars a month, is better than not saving at all. Even just practicing paying yourself first each month can yield significant benefits when you improve your financial situation and eventually get the chance to save more money.

Advantages and Disadvantages of a Pay Yourself First Budget

Advantages:

– A simple method for budgeting money

– Prioritizes saving

– The budget is implemented automatically

Disadvantages:

– Not optimal if you are living paycheck to paycheck

– May lead to unregulated spending

Conclusion:

A pay yourself first budget is a method for budgeting money where a set amount is designated for savings goals first, and then the rest of your paycheck is used as you wish. It is easier than other types of budgets since it does not require you to track every dollar you spend. As long as you are meeting your savings goals and not incurring more debt, you are doing well. However, this approach works best for those who have a good understanding of their spending and saving. It can be ineffective if you are at risk of overdrawing bank accounts or accumulating credit card debt.

Source: https://www.thebalancemoney.com/what-is-a-pay-yourself-first-budget-5216572