Personal Finance

Pay Yourself First (Again)?

I just started reading the book “Smart Couples Finish Rich” and one of the first things it mentions is to “pay yourself first”. This advice is similar to the “Wealthy Barber” and probably every other personal finance book ever written. Usually this involves getting money deducted from your bank account automatically so that you don’t miss it and it gets saved for retirement or vacations or whatever.

While I think this is a good strategy for a lot of people, in some cases it’s really bad advice. In particular, people that have excessive debt should be focusing their saving efforts on their debts and nothing else – not their retirements or vacations. Now someone in that situation might ask why they shouldn’t be paying themselves first as well and the answer is that they already have paid themselves, in some cases they might have overpaid themselves by a long shot. The reality is that debt results from spending more than you earn, in some cases this can’t be helped but in most cases it results from a deliberate decision to spend more money ie on a bigger, more expensive house (I did this), more vacations, newer cars etc. Sometimes it results from just not keeping track of your finances properly. Regardless of how you end up in the situation of having excessive debt, you eventually have to pay the piper. Some people choose to tackle debt head on by cutting their spending and reducing the debt as fast as they can. Others will cut back a bit and reduce the debt at their leisure. The remainder will ignore it completely and will pay during their retirement when they have a lower standard of living because they still have debt they have to service.

Please note that I’m not referring to deductible debt ie the type you have with an investment loan.

Do you have a lot of debt? How do you know if it’s excessive?

12 replies on “Pay Yourself First (Again)?”

I would say that in order to pay yourself first, you need money for that!
I guess a good sign to know if your cash flow went out of control is when you do not have this ability to pay yourself first!

What make sense to me is this, if the interest of your [consumer] debt is higher than the interest you earn in your savings account. I say pay down your debt first.

Because you are losing money by paying higher interest (by keeping a balance on your CC or whatever debt you have). Also, the interest you earn from your savings is taxable, so you are not really saving as much as you think (Generally speaking, and I am speaking from the U.S. point of view).

A sign that you have too much debt? When you can’t make the minimum payments.

FB – that’s a good indicator and sign that change is needed.

GS – good comment – if you can’t make your minimum payments then I’m not sure what you do!


I think that usually the idea is that “pay yourself first” could also include debt repayment. If you look at it that way, then it makes sense. I do agree that there’s no sense investing in the market if you still have consumer debt. Any financial advice that pushes saving before eliminating debt is doing a disservice to whoever follows it.

Thanks for the comment BB – I agree that paying down debt is considered saving. Unfortunately most financial advisors will push the investment side of saving rather than the debt repayment since one options increases their income and one doesn’t!


For me if you’re living from pay to pay because the interest on your debt is so high its preventing paying it down then you’re too far into debt. I have a lot debt, but I’m working on reducing it and keeping getting everything under control, I’m paying Visa first and when that’s done then I’ll start paying myself. Visa has a very hefty -18% interest and if I were to invest that same money I would be happy to get 10% growth… the math just works better if I remove the debt.

Thanks for the link

Thanks for the comment Matt. I’ve been in that situation myself and the most important thing is to get yourself onto the right financial path which it sounds like you’ve done.

I found the worst part was realizing that all the debt I had was just overspending on crap and now I had to struggle to pay it back.


BB Although eliminating consumer debt before investing is a no brainer when comparing rates of return, I think most are better off paying themselves first.

Many (myself incuded) are not disciplined enough to pay off consumer debt and then invest, I suspect they (I) would just add new consumer debt as cash flow became available…. so many shiny gizmos to acquire, so little time.

my 2c..

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