Pay Yourself First: 8 Steps to Reverse Budgeting in Australia

Traditional budgeting doesn’t work for everyone. Many Australians start each month with good intentions, only to find there’s “nothing left” to save once bills, groceries and everyday spending are done. Rising living costs have made this even harder, with savings often the first thing to be sacrificed.¹

That’s where pay yourself first comes in.

Instead of saving whatever is left over, this reverse budgeting method prioritises savings before spending. It’s a practical approach that can help you build better saving habits and improve your financial confidence over time — without needing to track every single dollar.

This guide explains what pay yourself first means, why it works, and how to implement it step by step in Australia. We’ll also explain how Credit24 may support your financial goals if unexpected expenses affect your budget.

What does pay yourself first mean?

Pay yourself first is a budgeting method where you set aside money into savings or investments as soon as you get paid — before paying bills or spending on non-essentials.

It’s often called reverse budgeting because it flips the traditional approach:

Traditional budgeting:
Income → Expenses → Save what’s left

Pay yourself first:
Income → Savings → Expenses → Discretionary spending

Instead of relying on willpower at the end of the month, this method makes saving a priority from the start.

If you’re new to budgeting, it can help to read:
https://www.credit24.com.au/blog/what-is-a-budget

Why it works psychologically

Behavioural finance research suggests many people tend to spend what’s available. When saving happens automatically, you may naturally adjust your spending habits around what remains rather than constantly deciding whether you “can afford” to save.²

This is one reason the pay yourself first method can work well for people who:

• Prefer not to track every expense
• Have variable income
• Find it difficult to save consistently
• Feel overwhelmed by traditional budgeting systems

By removing frequent saving decisions, you may reduce stress and make financial progress feel more manageable.

How the pay yourself first method works

The pay yourself first budget follows a simple cycle:

• Receive income (salary, wages, Centrelink, business income)
• Immediately transfer savings to a separate account
• Pay bills and essentials with the remaining money
• Spend what’s left within clear limits

Because savings happen first, they’re less likely to be skipped.

Compared to traditional budgeting, this approach may help:

• Reduce decision fatigue
• Minimise “accidental” overspending
• Build steady progress toward financial goals
• Improve financial consistency through automation

It can be especially effective when paired with a clear budget plan.

Helpful guide:
https://www.credit24.com.au/blog/how-to-do-a-budget

Benefits of the pay yourself first savings strategy

1. Consistent progress toward financial goals

Paying yourself first may help ensure:

• Emergency savings grow over time
• Saving doesn’t rely on leftover money
• Your goals remain a priority even during busy months

While results depend on your income and spending habits, the key benefit is that saving becomes part of your routine.

If you’re working toward specific milestones, you may find this helpful:
https://www.credit24.com.au/blog/financial-goals

2. Simplified money management

Unlike budgeting methods that require tracking every transaction, pay yourself first:

• Focuses on the bigger financial picture
• Reduces the need to monitor small purchases
• Can work well for irregular income
• Can be adjusted using percentages instead of fixed amounts

Many people find this method easier to stick to because it’s simple and repeatable.

3. Improved financial confidence and reduced stress

This approach can create a sense of momentum because savings are handled early. Over time, this may support:

• Reduced money stress
• More confidence in your financial routine
• Less guilt around discretionary spending
• Better long-term financial habits

Step-by-step guide to implementing pay yourself first

Step 1: Define your financial goals

Savings are easier to maintain when they have a clear purpose. Start by identifying what you’re saving for.

Short-term (1–2 years)

• Emergency fund (3–6 months of expenses)
• Holidays or travel
• Car repairs or replacement

Medium-term (2–10 years)

• Home deposit
• Investing
• Education or career development

Long-term (10+ years)

• Retirement
• Children’s education
• Property investment

Helpful guide:
https://www.credit24.com.au/blog/financial-goals

Step 2: Calculate your savings capacity

Before setting a savings amount, review your:

• Net income after tax
• Fixed expenses (rent, utilities, repayments)
• Variable expenses (food, transport, discretionary spending)

A simple way to estimate capacity is to look at your average spending across the last 1–3 months.

How much should you pay yourself first?
A common starting point is saving around 10–20% of income, but this depends on your circumstances. If that feels unrealistic, you can start smaller — even $20–$50 per pay — and increase gradually.

You can also use popular budgeting frameworks, such as the 50/30/20 rule:
https://www.credit24.com.au/blog/50-30-20-budget-rule

If you're working with limited income, this may also help:
https://www.credit24.com.au/blog/how-to-budget-and-save-money-on-a-low-income

Step 3: Set up your savings infrastructure

A key part of reverse budgeting is separating savings from spending.

A common setup includes:

• A high-interest savings account for emergencies
• Separate savings accounts for different goals
• Investment accounts for long-term wealth building

Keeping savings separate from your everyday transaction account may reduce temptation and make your savings feel more “locked in”.

Step 4: Automate your savings

Automation is the core of the pay yourself first method. The goal is to remove the need to remember or make decisions every payday.

Options may include:

• Automatic transfers scheduled for payday
• Splitting your pay through your employer payroll system
• Bank apps that support goal-based savings
• Automated investment contributions

Many Australian banks allow automated transfers or recurring payments through services like OSKO, which may make saving faster and more convenient.

Automation can help make your savings behaviour consistent over time.³

Step 5: Manage the remaining income

Once your savings transfer is completed, you can use the remaining income to cover:

• Essential bills
• Groceries and transport
• Other everyday spending

After essentials are paid, whatever remains becomes your discretionary spending limit.

This approach can make spending feel clearer because you know savings have already been accounted for.

Helpful reads:
https://www.credit24.com.au/blog/discretionary-spending
https://www.credit24.com.au/blog/how-to-save-money-on-groceries

Step 6: Build an emergency buffer

A key part of financial literacy is preparing for the unexpected. Even small emergency savings may help reduce reliance on credit in the future.

Many people aim for an emergency fund that covers 3–6 months of essential expenses, but starting smaller (such as $500–$1,000) may still provide meaningful support.

If you're still building a safety net, this may be useful:
https://www.credit24.com.au/blog/emergency-loans

Step 7: Review and adjust your savings percentage

Your budget should evolve with your life. If your income increases, your expenses change, or your financial priorities shift, your savings amount may need adjusting too.

A practical approach is to review your pay yourself first plan every 3–6 months and ask:

• Can I increase my savings rate slightly?
• Are my expenses realistic?
• Do I need to adjust discretionary spending?
• Have my goals changed?

Small adjustments can make the strategy more sustainable long-term.

Step 8: Stay consistent (even if progress is slow)

Financial progress often comes from consistency rather than perfection. If you miss a transfer or need to reduce your savings temporarily, it doesn’t mean the system has failed — it just means your budget needs recalibration.

Over time, even small automatic savings deposits can help improve financial resilience and literacy.

If you want to explore other ways to grow your income over time, this may help:
https://www.credit24.com.au/blog/passive-income-ideas

Credit24: Supporting your pay yourself first journey

Even with strong saving habits, unexpected costs like medical bills, urgent repairs, or temporary income disruptions can make budgeting difficult.

In some situations, a personal loan may help manage short-term cash flow challenges — especially if it supports financial restructuring rather than ongoing spending.

Credit24 personal loans may help eligible customers by:

• Supporting debt consolidation to potentially reduce monthly repayments
• Helping manage essential unexpected costs
• Offering personal loans from $500 to $10,000
• Providing fixed repayments that may suit structured budgeting approaches

Borrowing is a serious financial commitment and may not be suitable for everyone. It’s important to review your financial situation carefully and ensure repayments are manageable.

Related support:
https://www.credit24.com.au/blog/emergency-loans

Apply now: https://www.credit24.com.au/au/apply/login

Frequently Asked Questions

What does pay yourself first mean?

Pay yourself first means saving or investing money immediately when you receive income, before paying bills or other expenses. This can help make saving more consistent rather than relying on leftover money.

How much should I pay myself first?

Some people aim for 10–20% of their income, but the right amount depends on your financial situation. If that feels too high, starting with $20–$50 per pay and increasing gradually may be more sustainable.

Should small business owners pay themselves first?

Many business owners benefit from this approach because it encourages consistent saving even with irregular income. Using a percentage-based method and separating business and personal finances may help.

What’s the difference between pay yourself first and traditional budgeting?

Traditional budgeting focuses on saving what’s left after expenses. Pay yourself first reverses this by prioritising savings first, then managing expenses with what remains.

Can I use pay yourself first with irregular income?

Yes. A common approach is saving a percentage rather than a fixed amount. This allows you to save more in higher-income periods and reduce savings during lower-income months.

What if I can’t afford to pay myself first?

If you can’t save much right now, starting small can still build the habit. Reviewing expenses, adjusting discretionary spending, or exploring debt consolidation options may help create more room in your budget.

Why should I pay myself first instead of saving what’s left?

Many people spend what’s available. Paying yourself first can reduce the risk of overspending and may help savings become a consistent part of your financial routine.

What apps can help with pay yourself first budgeting?

Many Australian banking apps support automated transfers and goal-based savings features. Some investment platforms also allow automated contributions.

Sources

¹ ABS – Living Cost Indexes
https://www.abs.gov.au

² ASIC MoneySmart – Behavioural Biases in Saving
https://moneysmart.gov.au

³ Reserve Bank of Australia – Household Saving Behaviour
https://www.rba.gov.au

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.