The "Pay Yourself First" Budget

The below approach explains how you can establish your financial life using the pay yourself first approach to budgeting.

Pay Yourself First Approach to Budgeting

The pay yourself first approach to budgeting is less precise. With anything less specific, it does leave more room for error. Having at least a few thousand dollars saved up in an emergency fund will allow you to manage unexpected month-to-month spending fluctuations.

When You Don’t Have to Use a Traditional Budget

Throughout our debt payoff journey, we never had a traditional budget. A conventional budget involves writing down your expected expenses every month and tracking them every month. In the Dave Ramsey world, this is the way to go.

The Alternative: The “Pay Yourself First” or “Anti-Budget” Method

The simple explanation is that we save and invest before we do anything with our money. That money comes right off the top before we do anything else. The remaining money is then used to pay bills, other expenses, and discretionary purchases. Below is a step-by-step approach if you decide to use the Pay Yourself First approach to budgeting:

Step 1: Track Your Spending

Here’s the thing, you have to set a baseline when you’re starting. You don’t have to do this forever, but track every dollar you spend for a month or two. Don’t change any behaviors at first. Just write it all down.

Step 2: Automate Your Monthly Payments

Automating your finances allows you to hide money from yourself essentially. As silly as it may sound, the psychology of this is powerful. If you never see money in your account, you won’t find reasons to spend it. This approach also helps with lifestyle inflation.

Step 3: Spend the rest

This gives us the freedom to spend the remaining money on whatever we want, guilt-free. After a few days of getting paid, we usually know exactly how much we have left to spend on everything else, including outings with the kids, trips to the hardware store, convenient store purchases, and various other smaller purchases. This is referred to as fun money; we’re just getting to the number differently.

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