Pay Yourself First vs. Save What is Leftover

11 September 2014


When it comes to personal money management, there are two main ways to save money, the traditional stalwart of Saving What’s Leftover and the newer method you’ll read many personal finance experts recommending – Pay Yourself First.

They usually explain how each method is done: Saving What’s Leftover requires you to wait until the end of the month, after you’ve paid all your bills and expenses, to save what’s leftover. Paying Yourself First means exactly that - putting money away at the beginning of the month when all your income is still in your account and you have not had to spend the money on bills yet.

What they do not tell you is which savings method is better, so trust Bargainmoose to settle this burning question so you don’t have to.

Saving What’s Leftover Takes Discipline

People have been saving the money left over after expenses for years -- it is a common method for building a nest egg. The problem is, saving what is leftover takes discipline. Not many people have the self-control necessary to make sure there is actually anything left in their account at the end of the month. Our capitalist, consumer driven society plies us with too many temptations to spend our money on and there are always so many unexpected expenses that crop up that often you look at your balance sheet at month’s end and see a big fat zero, as all your money has been spent.

Paying Yourself First Makes Saving Your First Priority

Paying Yourself First changes your savings from a luxury to a necessity and calculates it as the first 'expense' you pay, thus ensuring that you do put aside money each month. It is a much more realistic strategy for growing your savings, according to Dan Sutton, managing editor of MoneySense Magazine. He says:

When things are automatically channeled away on payday, you’re less likely to miss or spend the money

Such a strategy also forces you to cut expenditures that are more frivolous in order to keep your savings growing when your budget is a little tighter. You can make sure the money goes into your account automatically, so you do not even have to think about doing it. All you need to do is tell your employer to take a certain amount off your pay cheque for your RRSP or transfer a designated amount into a high interest savings account every month. Some banks will even automatically transfer money from your chequing account to your savings account each month.

There is No Law against Doing Both

If you are super gung-ho about saving money and you consistently have money leftover at the end of every month anyway, why not employ both strategies to maximize your savings? Sutton recommends paying yourself first with whatever amount you can afford (perhaps $100 a month) and then, if there is any money left over, just sweep the remainder into a High Interest Savings Account.

Remember, it’s Your Money

Paying yourself first also makes logical sense as well as financial sense because you should remind yourself why you go to work every day. After all, you are not earning money for someone else – your money is yours. So, you should always make sure you get your money before anyone else gets it. This is why paying yourself first makes more sense than saving what’s leftover. However, you should avoid at all costs carrying a credit card debit. It does not make sense to pay 19.99% interest on the money you owe someone while only making a couple percent interest on the money you are saving. Pay off your debit first, and then start building a nest egg.

It’s Easier to Get Rich If You Pay Yourself First

It’s very hard to save and plan when there’s no guarantee that there will be any money at the end of the month to put away. But when a certain amount of money is deducted from your monthly income automatically, you’re basically saving money in your sleep. Think about it, if you have $200 from each of your biweekly paycheques deducted and put into your investment account from the time you are 25 to when you are 65 – you will have $1 million. You can get to $1 million with only 7% return on investment, according to This means the average person can become a millionaire with this strategy without winning the lottery and with a little sacrifice when it comes to spending. With diligence, it is possible and all you have to do is arrange one automatic money transfer every so often.

Pay Yourself First Wins!

Everyone wants to make money in their sleep and when you pay yourself first, you ensure that process actually gets done. If you just save what is leftover, you are counting on leftover money that will not always be there. Money management can be stressful, so making a nest egg your first priority when you are paid instead of your last priority will help reduce the stress and ensure that your savings continues to grow even during the more difficult months.

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