A budget can help you live within your means. But it can do much more than that. The budgeting process is an opportunity to pinpoint your financial priorities—and put them into action.

If your top goal is saving—for retirement, for future purchases, or simply for security—the “pay yourself first” budget might be for you. This method is also called the reverse budget because it starts with your savings. (Most other budgets start with bills, and earmark only what’s left over for saving.)

What does “pay yourself first” mean?

With this budget, you first set aside the money you plan to save. Then you pay for everything else—rent, food, vacations—out of what’s left after paying into your savings.

This budget challenges you to change your thinking about saving. It can be easy to see bills and expenses as your top responsibilities. The risk: Saving can feel like an afterthought. Paying yourself first means treating your savings like a bill—your most important bill.

Of course, you don’t want to take saving to an unhealthy extreme. If you try paying yourself first, set a realistic savings goal that allows for reasonable housing, food, and other needs and wants.

Should you try a reverse budget?

Putting yourself first can be an appealing way to budget. Will it work well with your overall financial goals? Consider the benefits and drawbacks.

Advantages

This budget puts saving front and center. Paying into your savings accounts before paying for anything else can help reframe how you think about saving—and make it easier to stay committed to your goals.

Reverse budgets can be very simple to follow. After automating your savings deposits, you simply spend what’s left over. That makes this a good option if you don’t have time to track every dollar you spend—or if you don’t want to think about money every day.

Employing this budget when you get a raise can be particularly helpful in avoiding “lifestyle inflation.” If you immediately channel the extra money coming in to savings goals, you won’t have the chance to start spending more.

Disadvantages

Reverse budgeting works best if you regularly have extra funds after meeting your financial obligations each month. If you’re living paycheck to paycheck, taking money from your checking account before paying your bills could put you at risk of overdraft. Or, you could find yourself unable to pay an important bill, face late fees, or, worse, have utilities shut off. If your income fluctuates (common if you’re a freelance or gig worker), “pay yourself first” may not offer enough flexibility to pay your bills.

Another drawback: A reverse budget provides less insight into your spending than some other strategies.

Bump up your saving rate

The U.S. Bureau of Economic Analysis pegs the personal saving rate at a little over 5% . This means that the average American spends 95% of everything they earn (after taxes). But what’s your saving rate? If you’re not sure, track a few months’ spending and compare it to your take home pay to get an idea of how much—if any—money you typically have left over.

If you’re reading this, chances are you’d like to save more. To get started, increase your current saving rate just a little. If you’re saving 5% now, try 7% or 8%. Figure out how many dollars you need to set aside each pay period to meet your new goal.

Say your take-home pay (after deductions like income and FICA, or Social Security and Medicare taxes) is $2,000 every two weeks, and you aim to save 7%. When you get paid, you’d immediately move $140 into savings, and limit your spending to the remaining $1,860. The idea is to trick yourself into believing that the $1,860 is your whole paycheck, so you’re not tempted to spend the $140 you paid into your savings.

Automate your savings

The easiest way to stick to paying yourself first is to keep the money you don’t intend to spend out of your checking account. And the easiest way to do that is to put your savings on autopilot:

• Enroll in an automatic contribution arrangement for your retirement plan. Most employer-sponsored retirement plans will deduct your regular contribution from your wages.
• Link your checking account to a savings account. Most banks offer the option to have linked accounts, and schedule transfers from one to another.
• Split your direct deposit. You probably already have your paycheck sent directly to your bank account. If your employer offers the option, have part of your check direct deposited into your savings account.
• Set up auto investments. If your “pay yourself first” goals include investing, you may be able to split your direct deposit between your checking and brokerage accounts, or set up a scheduled transfer.

Once the portion of income you intend to save comes out of your checking account, the only money that remains should be for spending. When the account gets low, you’ll know it’s time to stop spending—until you get paid again.

Other budgets you might like

If you prefer a more detailed look at spending, you might consider a different budget—or combine methods. Some other budget strategies to consider:

• Zero-based: Figure out a purpose for every dollar (whether expenses or saving), so that every pay period ends with $0 unallocated.
• Envelope: Use paper or digital “envelopes” to compartmentalize expenses and track spending.
• 60/40: Limit committed expenses to 60% of your budget and use the rest for savings and fun.
• 50/30/20: Split your budget between a healthy balance of essential needs, wants, and savings.

Written by Jessica Sillers

Jessica Sillers is a finance, insurance, and business writer based in Maryland. Her work has appeared in many websites and publications, including Zapier, Backer, and Credit.org.

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