We tend to pay for everything else in the following order: rent, groceries, utilities, fun and may be saving at last and the cycle is going around these corners. Undoubtedly, you would like to save, but there is just no money left at the end of the month. The problem does not lie in your regular income or low earnings that could not able to have enough money left to add to savings, the problem is likely in the sequence of your spending habit at least not until your next paycheck. And so the cycle goes. If this sounds familiar, by the time you pay off your bills first, getting start saving can be onerous task for you and sometimes may even seem impossible. In that situation, you may end falling short of your financial goals due to paucity of funds at different stages of your life. This scenario is certainly one with which millions of people can identify themselves. Fortunately, it doesn’t have to be that way. One of the most powerful and effective strategies for building positive cash flow which you would really want to gain control of your cash flow is “Pay Yourself First”. All the money books tell you to do it. All the personal finance blogs say it, too. Even your parents have given you the same advice. Let’s discuss in the details.


What does mean Pay Yourself First?

To pay yourself first means simply that whenever you get a monthly payout the first bill you pay is to yourself. It’s not the car payment, rent, grocery bill, or your water bill. Pay yourself a decent bit of money and then immediately put that money into a separate investment savings account. Don’t touch it until you’re ready to invest it in some way. Put simply, most of us have grown seeing the following equation.

Income Less Expenses = Savings

Here is an excerpt about paying yourself first is that

Income Less Savings = Expenses

And that is the mantra for making saving and nothing else.

Motivational Tool

When you pay yourself first, you are mentally establishing saving as a priority. You are telling yourself that you are more important than your lender, electric company or landlord. By paying yourself first, it may be very likely you to have short of money to pay your other regular bills etc. In that case your creditors will definitely scream louder on you but if you don’t pay yourself first, you would not say anything. Hence, after paying yourself, the pressure to pay your taxes and the other creditors is so great that it forces you to seek other streams of income. The pressure to pay becomes your motivation. You would strive to get extra jobs, started other companies, investing in the stock market, anything just to make sure those guys don’t start yelling at you. That pressure made you work harder, forced you to think, and all in all, made you smarter and more active when it comes to money. If you had paid yourself last, you would have felt no pressure and there would be always going to be reasons to delay and waiting until next year or the year after.

Paying yourself first encourages sound financial habits.

How to develop the habit?

Our lives are a reflection of our habits more than our education. If you are serious about building positive cash flow in your life, you have to start with this basic simple rule. You probably know it’s good for you, but it’s rarely pleasant. Some people give up before they start. They know they’re in a big hole but don’t want to deal with it. The real barrier to developing this habit is finding the money to save. If you are struggling to find money to save, the best way to develop a saving a habit is to make the process as painless as possible. Make it automatic and invisible. If you arrange to have the money taken from your paycheck before you receive it, you will never know its missing. Many people still believe it’s impossible. But I firmly believe that almost everyone can save at least 1% of their income. That’s only one penny out of every rupee. Some will argue that saving too little is meaningless and has no value. But if you will try to save just 1% of your income, you will usually discover the process is painless. Maybe next you will try to save 3% or 5%. As your income increases, set your gains aside for retirement and savings. Once you are contributing the maximums to your retirement and you have built emergency savings, you can begin to use your raises for yourself again. Sure, this means your effective salary may stagnate for a year or three or five. But it also means you will force yourself to develop the saving habit. Part of your savings plan will probably include retirement, but you should also save for intermediate goals too, such as buying a house, paying for a honeymoon, or purchasing a new car.

Example: My wife is a perfect case study. She started by having 10% of her pre-tax income set aside in variable recurring deposit. As her salary increased, she increased the amount she saved, routing it to various recurring accounts. Because she never saw the money in her paycheck, she never missed it. Now she saves 30% of her income, and she has now accumulated handsome corpus .How did she do this? By paying herself first. My wife is awesome.


Budgeting is the next step to build up positive cash flow in your financial life. Your budget restrictedly allows you to plan how to spend your money. It makes it easier to find ways to save money. In budgeting exercise, you should not skip even minor details and to identify hidden expenses, which you can easily reduce with any noticeable impact on your lifestyle. By cutting expense just Rs500 per month could make an additional saving for you and investing in equity assets yielding 20% return , will able to generate a corpus in excess of Rs 1core over 30 years. Treat your savings as a bill that you have to pay, under no circumstances should you stop the contributions or make a withdrawal. Once you miss one payment or start withdrawing the whole plan could fall apart.

Final Reading

In short, start getting in the habit of watching how you spend. Give yourself a week and just check on how much you can save by not buying the expensive shampoo or not going out to dinner. Let’s say you save Rs 30 or Rs40 a week. Over a month, that comes to more than Rs 100. Over a year, you’re saving Rs 1,200 or more—and that’s a nice chunk of change to put towards paying off your credit cards. Your goal should be to get out of bad debt as quickly as possible so you can start looking to a better future and thinking like the rich. Then you can start buying or building assets that will generate the passive income to pay for your phone bills, electric bills, insurance policies, and more. No matter what your age, you should make it a priority to develop a regular saving plan. Establishing this habit early can lead to increased financial security later in life. But even those of us who got a late start should do our best to pay ourselves first. I didn’t begin doing this until just a few years ago. Better late than never.

“What do you do when you find yourself in a hole? Stop digging.”

                                                                                                                                                           – Anonymous

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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