Most people follow a simple budgeting formula: pay bills, cover necessities, and then save whatever is left. But what if that’s the wrong approach? Genesis Kelly Lontoc, a Registered Financial Planner, argues that paying yourself first should be the priority—not an afterthought.
“We must pay ourselves first. We must set aside funds for the future at the onset,” Lontoc explains.
This means shifting from the traditional 50-30-20 budget framework (where savings come last) to a 20-50-30 rule, where the first 20% of your income goes directly to savings, investments, and debt payments before anything else.
Step 1: Automate Your Savings
One of the easiest ways to pay yourself first is by automating savings. Set up a direct deposit into a separate savings account as soon as you receive your salary. This ensures that saving becomes a habit—not an afterthought.
“The first step in the 20% component is to save. Savings support future consumption,” says Lontoc.
Part of this savings should go toward an emergency fund, which should cover 6 to 12 months of expenses. This financial cushion protects against unexpected events like medical bills or job loss.
Step 2: Manage Debt and Insurance
Before focusing on wants, allocate funds toward debt payments and insurance.
“Being able to settle debt provides financial and emotional relief. Paying short-term debt first can boost confidence in managing debt,” Lontoc explains.
Additionally, insurance acts as a financial safety net. Whether it’s life, health, or non-life insurance, it ensures that financial setbacks don’t wipe out your savings.
Step 3: Adjust Your Expenses to Fit Your Budget
With 50% of your income allocated to needs and the remaining 30% to wants, it’s important to prioritize essential expenses.
“Needs should always be prioritized over wants,” Lontoc emphasizes.
This doesn’t mean eliminating all fun spending—just making sure it’s budgeted. Financial literacy isn’t about depriving yourself, but about creating a sustainable lifestyle.
The Bottom Line
By paying yourself first, you secure your future without sacrificing your present. The key is intentional budgeting, ensuring that your financial priorities are met before anything else.
