How to Pay Yourself First and Save With the 80/20 Budget

Budgeting can be stressful, but it’s the best way to stay on top of bills, expenses, and debt. Just as importantly, budgeting can help you save for emergencies, big purchases, and retirement. 

For many, the savings aspect of budgeting can feel out of reach. Below, we’ll walk you through what it means to pay yourself first—a budgeting strategy that emphasizes saving—and how you can accomplish it with the 80/20 budget.

Table of Contents

1. What is the “pay yourself first” strategy?
2. How to pay yourself first with an 80/20 budget
   1. 1. Define your savings goals
   2. 2. Cut expenses where you can
   3. 3. Schedule recurring financial check-ins
3. The best apps for paying yourself first
4. 80/20 budget alternatives for paying yourself first
5. Is paying yourself first right for you?

What is the “pay yourself first” strategy?

Paying yourself first is a budgeting strategy wherein you allocate a portion of your income toward savings goals before setting aside money for monthly bills and discretionary spending.

This doesn’t mean you put your entire paycheck into savings. This strategy simply forces you to make room for saving; you still must have enough money left over for other expenses.

Why paying yourself first is important

Paying yourself first forces you to think about your financial future above all else. Here are some of the benefits:

• You’re covered in an emergency: By paying yourself first, you can establish an emergency fund to draw from as needed to cover unexpected expenses.
• You can enjoy bigger luxuries: When you aren’t focused on saving, you might enjoy little luxuries, like a dinner out with friends or a new TV. But when you save money, you can afford epic vacations and new cars—or even a down payment on a house.
• You can save for retirement: According to a report from Allianz, more than half of Americans don’t have a plan for how they’ll fund retirement. Focusing on saving now is crucial to ensuring a peaceful retirement.

What counts as paying yourself first?

You can pay yourself first in a number of ways, as long as you actively set aside money to save. Here are accounts to consider:

• High-yield savings account
• Certificate of deposit (CD)
• Money market account
• Health Savings Account (HSA)
• Flexible Savings Account (FSA)
• 529 plan
• 401(k)
• Roth or traditional IRA
• Brokerage account

If you’re new to the 80/20 budget, I recommend starting with a high-yield savings account to build an emergency fund, gradually working toward one, two, and eventually three (possibly up to six to 12) months’ worth of expenses. Any extra funds should be added to this account as soon as possible. If you have access to a 401(k) and are eligible to contribute, your next priority should be saving up to the maximum amount your employer matches. Beyond that, the choice of additional accounts will depend on your individual life goals. A good rule of thumb is to focus on long-term investing—whether for retirement or shaping the future you envision.

How to pay yourself first with an 80/20 budget

Paying yourself first is a broad form of budgeting; adding structure, like with an 80/20 budget, can ensure you stick with the approach.

An 80/20 budget is straightforward: Put 20% of every paycheck into savings, and do what you wish with the other 80%. Some of that 80% will go toward needs, such as housing, groceries, utilities, and healthcare; the rest can go toward wants.

You don’t need to log every expense in a spreadsheet and upload every receipt to a budgeting app—as long as your bills are getting paid. Because you know you’ve already responsibly funneled money into savings, you have the freedom to spend the rest of the money however you see fit, guilt-free.

Here’s how to pay yourself first with the 80/20 budget.

1. Define your savings goals

Having a clear sense of what you’re saving for will help determine what types of accounts to open and how to distribute your savings each month. For instance, if you’re saving for a wedding or vacation, you’ll want liquid funds in a savings account. But if you’re saving for a child’s education or your retirement, you can invest your money in a 529 plan or an IRA.

2. Cut expenses where you can

If you’re struggling to manage your bills after setting aside 20% of your earnings toward savings, cut some expenses. Start with discretionary spending to see where you can pull back.

You can also focus on ways to lower non-discretionary expenses, including:

• Reducing insurance coverage or shopping for a new insurer
• Adjusting your energy consumption to lower your utility bills
• Shopping for generic items and using coupons at the grocery store

3. Schedule recurring financial check-ins

The best part of the 80/20 budget is you don’t have to log every transaction. You can spend without worrying about how and where your money is going.

But that doesn’t mean you should never check in on your spending. At least once a month, review your finances to ensure your savings are growing as expected and identify spending patterns you’d like to adjust.

The best apps for paying yourself first

Here are a few helpful apps for automating savings when paying yourself first:

EarnIn

The EarnIn app is known for its early paycheck access feature, but members who enroll in Tip Yourself get an FDIC-insured account. You can then set up recurring transfers from a linked checking account to this EarnIn account—up to $100 a day, across five different “Tip Jars” (savings goals).

It’s a cool feature if you’re getting started, but if you can remember to move money on your own when you’re paid, look for a real savings account where you earn interest on your money instead.

Chime

Speaking of real savings accounts, Chime’s a good example. While not a bank, this financial institution lets you open both checking and savings accounts that can work together to automate your savings:

• Chime’s Save When I Get Paid automatically transfers 10% of every direct deposit from your checking account to your savings account.
• Chime’s Round Up feature automatically rounds up each debit card purchase to the nearest dollar; that spare change goes to your savings account.

Chime’s savings account is pretty good, too—it has a 2.00% annual percentage yield.

Acorns

Savings accounts are great, but if you’re ready for something more advanced, you can automate investments through the Acorns app.

Acorns recommends an investment portfolio based on your goals. You can then set up automated investments using spare change from debit and credit purchases. You can also set up automatic recurring investments; Acorns recommends $5 a day.

Other ways to automate paying yourself first

Several more apps can help you automate saving, but you can also do some automation on your own:

• Work with your employer to split your paycheck direct deposit—some into checking and some into savings.
• Opt in to your employer’s 401(k) plan, so money automatically comes out of your paycheck and into a retirement account.
• Open your bank’s mobile app to set up monthly recurring transfers from checking to savings.

80/20 budget alternatives for paying yourself first

The 80/20 budget isn’t the only way to pay yourself first. If you don’t like the loose structure, consider one of these instead:

50/30/20 budget

The 50/30/20 budget is essentially the 80/20 budget but with more structure. You still save 20% of your income, but you’re stricter with the other 80%: 50% gets set aside for essential expenses (housing costs, food, debt repayment, etc.), and 30% is left for discretionary spending.

There’s no one-size-fits-all model. Perhaps you have a significant amount of debt that needs to be repaid, so a 70/20/10 budget may be necessary. Or perhaps you have a roommate, which lowers your expenses, allowing you to manage a 40/30/30 budget that enables you to save even more.

Zero-based budget

Zero-based budgeting is another common form of budgeting wherein you allocate every dollar you make to a specific expense. When paying yourself first, you simply allocate some of those dollars toward your savings goals, which could be a mix of a savings account, HSA and retirement contributions, and actual investments.

Is paying yourself first right for you?

Paying yourself first can be helpful, but it’s not for everyone. Below are several scenarios when it does and doesn’t make sense.

Pay yourself first if…	Focus on another strategy if…
You make a decent income but aren’t currently saving	You have significant debt
You’re not taking advantage of retirement accounts	You’re living paycheck to paycheck
You spend a significant amount on wants	You don’t have a stable income

Pay yourself first if you make a decent income but aren’t currently saving

If you can pay all your bills and have money left over but have no direction for savings, this is a great opportunity to figure out your goals and commit to them by paying yourself first.

Pay yourself first if you aren’t taking advantage of retirement accounts

Likewise, if you make good money but don’t have retirement accounts, calculate how much you can afford to set aside. The earlier you start saving, the better—compound interest means early investors have more money by retirement.

Pay yourself first if you spend a significant amount on wants

Having new stuff and experiences is always fun, but in the long term, that excess discretionary spending means you’ll have less saved for big purchases, such as a house, car, wedding, or vacation, and you may have to work longer if you don’t have enough to retire.

Paying yourself first ensures you cover those savings before splurging on wants; once you’ve made your monthly savings contribution, you can spend without guilt.

Don’t focus on saving if you have significant debt

Ideally, even when you’re climbing out of debt, you should set aside some savings for emergencies; that way, you don’t reach for your credit card when you encounter a major expense.

But when you’re feeling crushed by high-interest credit card debt or are at risk of defaulting on a car loan or mortgage, you should put every last penny you can toward that debt—and worry about the savings later.

Don’t focus on saving if you’re living paycheck to paycheck

If you end each pay period with pennies in your checking account, focus on getting your spending under control to get out of the paycheck-to-paycheck cycle. Then find new ways to earn more money (getting a second job, starting a side gig, asking for a raise).

Once your income and expenses are more stable, you can focus on savings.

You don’t have a stable income

If your income fluctuates from month to month—like with gig work, freelance jobs, or seasonal employment—committing to a fixed savings amount can be stressful. A more flexible budgeting strategy, such as zero-based budgeting or percentage-based saving, may be easier to manage.