ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What is the “Pay Yourself Principle”? The “Pay Yourself Principle” is a method of prioritizing your monthly spending which puts your savings first. Hence, you need to fund your savings and investment accounts before you pay any other bills.

Detailed explanation-2: -A “pay yourself first” budget puts savings goals ahead of bills and spending. Also known as reverse budgeting, this low maintenance approach is easy to automate. It may be harder to use if your income fluctuates or you live paycheck to paycheck.

Detailed explanation-3: -Begin by listing your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities and car payments. Next list your variable expenses-those that may change from month to month, such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back.

Detailed explanation-4: -’Pay yourself first’ is a reverse budgeting strategy where you build your spending plan around savings goals, such as retirement, instead of focusing on fixed and variable expenses. This prioritizes savings, but not at the expense of necessary expenses like housing, utilities and insurance.

Detailed explanation-5: -With a pay-yourself-first savings strategy, your savings always comes first. This means dipping into savings is almost entirely off-limits. By following this strategy, you would rather pay a bill a month late than take money from your savings to pay it off. This is also why the strategy works.