Pay Present Self vs Future Self

[mikefixac]

I've read many books on personal finance through the years, and one of the key pieces of advice was: Pay yourself first.

Honestly, I didn't like that advice and it intuitively didn't make sense. Reason being, that if I paid myself, it was then my money and I could go spend it however I wanted.

Now if I had read all those "Pay yourself first" rules as "Pay Your Future Self" I might have thought about it differently. Then I might have realized, yes, I don't have that money to spend now, but in the future, all that money that's saved (and the compounded money) goes to "Future me".

So before I looked at "Pay yourself first" as punish yourself first. Thinking, geez, I worked all week long to make this money, now I've got to punish myself.

Looking at it as paying future self, yes there can be some pain, especially at the beginning, but once it becomes habit, and future self watches the money grow, future self is gratified with delaying gratification and being responsible.

[arebelspy]

I never liked this because it meant I was only saving what I paid first, and then was supposed to spend the rest.

It implies that once you save that amount, you're free to spend the rest.

Instead, I prefer to pay myself last. Get the paycheck, spend as optimally as possible, then save ALL the rest.

Pay yourself first might have me putting away 10 or 20%.  I'd rather spend 25% and then bank the other 75% by saving whatever's left.

[csr]

Totally agree with arebelspy! I never understood having to pay yourself first and budgeting for different categories like "entertainment", "clothing" etc. Budgeting in the traditional sense seems to me like forced spending. When you budget money for something, you're bound to spend it. The only budget I follow is 100% savings to my bank. For me it was always pay myself everything, and minimize expenses to necessities only - food, housing, transportation. I go out of budget when I need to. The reverse.

[cawiau]

Budgeting is giving each money a purpose so I am lost how it is forced spending. You can budget to save 50-70% of your income... Just because you budget it does not mean you have to spend it all.  We currently live on about 40% of our gross income, yet every single penny is budgeted.

And the reason say: pay yourself first... Is that you are the first to get paid ; before insurance, taxes, etc. if it works for you to say future self, go for it but doesn't change the general idea.

Before my wife and I get paid, we have X amount going into 401k and 403b (Max each at $18,000/year)  before we pay health insurance, dental insurance, state/federal taxes, social
Security or any is deposited into our checking or savings.

It is not the only money we save (Roth IRA, taxable accounts, 529) but it is how we pay ourselves first before anyone else get their share.


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[arebelspy]

Budgeting is giving each money a purpose so I am lost how it is forced spending.

It has a purpose: to be spent on whatever spending arises, and the rest to be saved. What does the budget get me?

It is not the only money we save (Roth IRA, taxable accounts, 529) but it is how we pay ourselves first before anyone else get their share.

But how do you know all those other things will get their share?  How do you know you'll have enough to pay the rest of the bills if you pay yourself some amount first?  What if I pay myself 90% first, and I can't live on the other 10%?  How do I know exactly how much I'll spend on food this month?

It just makes more sense to me to get the paycheck, spend as optimally (as little, often) as possible, and save all the rest. So if I spend 30% of net pay this month, I then save the rest, 70%.  Maybe next month I go out with friends for a birthday, and have a car repair, and pay for those, and it takes 40% of net, so I only save 60% this month. 

If I budgeted every dollar, I wouldn't have foreseen those. Better to spend where necessary, and save as much as possible.

[cawiau]

Budgeting is giving each money a purpose so I am lost how it is forced spending.

It has a purpose: to be spent on whatever spending arises, and the rest to be saved. What does the budget get me?

But how do you know all those other things will get their share?  How do you know you'll have enough to pay the rest of the bills if you pay yourself some amount first?  What if I pay myself 90% first, and I can't live on the other 10%?  How do I know exactly how much I'll spend on food this month?

It just makes more sense to me to get the paycheck, spend as optimally (as little, often) as possible, and save all the rest. So if I spend 30% of net pay this month, I then save the rest, 70%.  Maybe next month I go out with friends for a birthday, and have a car repair, and pay for those, and it takes 40% of net, so I only save 60% this month. 

If I budgeted every dollar, I wouldn't have foreseen those. Better to spend where necessary, and save as much as possible.

You are making it more complicated than you need to. And how do I know? Because this is not the first time I am writing a budget!

And I do not write my budget month to month, I write it yearly and it is broken down to monthly.

So let's use your example. Our grocery budget is $1,000/month... But one month we might just spend $720 while Christmas and thanksgiving we tend to entertain more so it is closer to )1,300.  But on average all 12 months we spend $1,000/month. So the months I spend $800 I do not spend the difference of $200 somewhere else,  it stays in my account and covers the months I go over the budget.

And also emergencies or unknown expenses: that is why you have an emergency fund or a catch all savings or as I call it "MISC." I set a certain amount to be put aside each month to cover unknown/unforeseen expenses.

It is pretty simple and straightforward. I do not budget to spend money but I budget because I actually have a goal in mind and I need to know where all my money goes or is going.

My saving rate is important to me so that comes first. I PAY myself first. I set a plan/goal to save a certain amount each year and then my spending falls in line with the rest.

So I know no matter what I have:
18k - 401k
18 k - 403b
11k - 2 Roth's
6.5k - HSA
12k - 529 accounts
12k - taxable accounts

And then my spending falls in line after the target saving rate has been reached. So my budget plan - a bigger portion goes to savings vs spending. The reason I budget is because my wife and I want to hit that target.

So 40% this month, 60% next month, maybe nothing the month after would not work for us.

ETA: your unforeseen have categories:

- clothing
- car maintenance
- car replacement
- home maintenance
- emergency fund
- MURPHY (that is my misc misc).

I put money aside in each of those categories so guess what? When Murphy hits: the money is there!

----> Also we usually exceed our saving goals because we do not budget our bonuses (may come, may not) so we save/invest 100% of the bonuses we get.

----> we are both salaried employees so it is not like there is ever a "surprise" in our paychecks (besides bonuses which we usually know when they are coming and for how much a week or two before hand).


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[StetsTerhune]

"Pay yourself first", as with a lot of personal finance advice, is  about people tricking themselves into saving money.  It's essentially treating the symptoms instead of the cause. It doesn't treat the underlying problem that some people have -- if there's money sitting around, they'll spend it. I don't have that problem, and @arebelspy doesn't have that problem, but a lot of people clearly do.

There's a good reason nearly all personal finance advice takes this tack -- apparently no one has any idea how to turn people who will spend money if they have it into people like us.

[Telecaster]

I've read many books on personal finance through the years, and one of the key pieces of advice was: Pay yourself first.

Honestly, I didn't like that advice and it intuitively didn't make sense. Reason being, that if I paid myself, it was then my money and I could go spend it however I wanted.

Cosigned.  I don't think that's helpful advice, really.  A better way to put it would be "Don't fuck yourself by being an idiot."   

Putting it that way might not sell as many books however. 

[Tyson]

"Pay yourself first", as with a lot of personal finance advice, is  about people tricking themselves into saving money.  It's essentially treating the symptoms instead of the cause. It doesn't treat the underlying problem that some people have -- if there's money sitting around, they'll spend it. I don't have that problem, and @arebelspy doesn't have that problem, but a lot of people clearly do.

There's a good reason nearly all personal finance advice takes this tack -- apparently no one has any idea how to turn people who will spend money if they have it into people like us.

I used to be a spendypants, made a lot, saved not very much.  Then I got laid off and was unemployed with zero cash coming in for the better part of a year.  Cut WAY back on expenses but still burned through all our savings.  Now I'm back and making more money than ever, but the frugal habits I developed during the lean times has stuck.  In fact, it probably is what changed my perspective to even allow me to be open to the MMM message.  But once you have that change of perspective and change of heart, it's amazing how fast you can turn it around.  I went from saving almost nothing, to 55% or 59%, depending on how I calculate it.  And trust me, if "I" can do it, ANYONE can do it.  I was terrible, terrible, terrible with money before.  So there's hope even for the worst offenders, IMO.

[lizzzi]

I'm not sure whether I pay myself first or pay my future self first. But I visualize myself in the future being frail and elderly, maybe needing a little help in the house...whatever. So I salt away a big chunk of the income first...leaving enough for the bills and whatever I've decided I need to spend that month (like getting the snow tires put on yesterday)...so, yes...I give the money to myself first, in the Vanguard accounts or the FU account...but my mind is really thinking of that little old lady 30 years from now, who might need some help.

[rockstache]

Budgeting is giving each money a purpose so I am lost how it is forced spending.

It has a purpose: to be spent on whatever spending arises, and the rest to be saved. What does the budget get me?

But how do you know all those other things will get their share?  How do you know you'll have enough to pay the rest of the bills if you pay yourself some amount first?  What if I pay myself 90% first, and I can't live on the other 10%?  How do I know exactly how much I'll spend on food this month?

It just makes more sense to me to get the paycheck, spend as optimally (as little, often) as possible, and save all the rest. So if I spend 30% of net pay this month, I then save the rest, 70%.  Maybe next month I go out with friends for a birthday, and have a car repair, and pay for those, and it takes 40% of net, so I only save 60% this month. 

If I budgeted every dollar, I wouldn't have foreseen those. Better to spend where necessary, and save as much as possible.

You are making it more complicated than you need to. And how do I know? Because this is not the first time I am writing a budget!

And I do not write my budget month to month, I write it yearly and it is broken down to monthly.

So let's use your example. Our grocery budget is $1,000/month... But one month we might just spend $720 while Christmas and thanksgiving we tend to entertain more so it is closer to )1,300.  But on average all 12 months we spend $1,000/month. So the months I spend $800 I do not spend the difference of $200 somewhere else,  it stays in my account and covers the months I go over the budget.

And also emergencies or unknown expenses: that is why you have an emergency fund or a catch all savings or as I call it "MISC." I set a certain amount to be put aside each month to cover unknown/unforeseen expenses.

It is pretty simple and straightforward. I do not budget to spend money but I budget because I actually have a goal in mind and I need to know where all my money goes or is going.

My saving rate is important to me so that comes first. I PAY myself first. I set a plan/goal to save a certain amount each year and then my spending falls in line with the rest.

So I know no matter what I have:
18k - 401k
18 k - 403b
11k - 2 Roth's
6.5k - HSA
12k - 529 accounts
12k - taxable accounts

And then my spending falls in line after the target saving rate has been reached. So my budget plan - a bigger portion goes to savings vs spending. The reason I budget is because my wife and I want to hit that target.

So 40% this month, 60% next month, maybe nothing the month after would not work for us.

ETA: your unforeseen have categories:

- clothing
- car maintenance
- car replacement
- home maintenance
- emergency fund
- MURPHY (that is my misc misc).

I put money aside in each of those categories so guess what? When Murphy hits: the money is there!

----> Also we usually exceed our saving goals because we do not budget our bonuses (may come, may not) so we save/invest 100% of the bonuses we get.

----> we are both salaried employees so it is not like there is ever a "surprise" in our paychecks (besides bonuses which we usually know when they are coming and for how much a week or two before hand).


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Your budgets seem really high. I think pay yourself first is fine when you are first starting out and still need a budget.

Once you have gotten to the level that arebelspy is at and are optimizing everything, then budgets are just unnecessarily complicated. Just spend what you absolutely must and save everything else.

[HAPPYINAZ]

I feel the same as Arebelspy.....We have never budgeted, yet we always track our spending and always save most of our income.  Money comes in, we save as much as possible and only spend money on what we feel is important.  I have never understood the idea of having to budget.  You either have to spend the money on something (heat, automobile, insurance, food, etc) or you don't.  Instead, we look at our spending over time and then see if we can reduce it in some way.  I also never understood the pay yourself first idea either.  Since I run my own businesses, I pay all the expenses first, then what is left over is my pay.  But apparently budgeting and pay yourself first works for lots of people, so whatever system works to help you save the most and spend the least is the one you should use!       

[Bertram]

"Pay yourself first", as with a lot of personal finance advice, is  about people tricking themselves into saving money.  ...  I don't have that problem, and @arebelspy doesn't have that problem, but a lot of people clearly do.

There's a good reason nearly all personal finance advice takes this tack -- apparently no one has any idea how to turn people who will spend money if they have it into people like us.

This is the key take away IMHO.

Having said that, budgets are just a different word for plans. Most people will use them once a month or less in order to get an ex-post overview, compare to the plan and see if and what kind of adjustments are necessary. It adds transparency and forces you to place each individual spending into the framework of your overall spending.

As with many things some people have just much higher awareness than others. In traffic some people only track what happens up to the bumper in front of them, others know all vehicles and their relative speeds for the next 500-1000metes and are always calculating what might happen and how other drivers will react.

What may sound useful to some will already be obvious/trivial/natural to others. Different tips are for different people with different backgrounds/experiences. I think most regulars here are already hyper aware when it comes to spending.

[MrsPete]

I guess I'm in good company in that I have also scratched my head at the oft-repeated phrase, "Pay yourself first".  It makes more sense to me to say, "Make saving a priority", but I suppose the person who coined the phrase thought it was clever.

I tend to think of doing chores of making purchases as "gifts to future me".  For example, at school instead of running off JUST today's test, I'll make 4Xs as many ... and now I don't have to make copies for the next three semesters.  Or I'll buy or make (and wrap) Christmas gifts during the summer and fall so that I don't have to go out in December, when the world seems more busy and crowded. 

I can see how the idea of "paying future me" would resonate with some people.