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Financial Literacy
Course: Financial Literacy > Unit 2
Lesson 3: Saving money- Why and how to save
- Why and how should I save money?
- Planned and unplanned expenses
- I am ready to save. What is the next step?
- Saving wisely: emergency fund
- Emergency fund
- Saving wisely
- Saving wisely: planned expenses
- Paying yourself first
- Pay yourself first
- Paying yourself first
- What are different types of savings accounts?
- What is interest and how does it work?
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Paying yourself first
Paying yourself first means that before you spend any of your money on bills, food, or other expenses, you put some of it into savings. This way, you're making sure that you're saving money each time you get paid, rather than hoping there's something left over at the end of the month. This can be a good way to build up your savings over time and get into the habit of spending less than you earn. Created by Sal Khan.
Want to join the conversation?
- When dividing the cost over weeks, isn't it 48 weeks, not 52 weeks? Since there are 12 months and 4 weeks make 1 month; so 12 times 4 equal 48.(5 votes)
- Let's do it this way: If you get paid weekly, budget your weekly income to pay monthly and annual costs as if the year included only 48 weeks. Then you'll have 4 weeks extra income to invest. BUT, if you get paid monthly or quarterly, use those figures to pay monthly bills. You won't have the "extra" at the end of the year, but neither will you get behind.(4 votes)
- Is the 50-30-20 a good tool for saving.(2 votes)
- This tool has worked for many people, but you won't know if it will work for you until you try it. Start now.(8 votes)
- What percentage of a pay check should I put in the my savings for pay myself first?(3 votes)
- What does the 50-30-20 tool tell you? Look at that, and start somewhere.(3 votes)
- Why would we pay ourselves first shouldn’t we pay the bills?(3 votes)
- "Paying yourself first" is not about paying your bills last, it is about paying yourself before you spend money on things that you could do without. Certain bills are a necessary part of life. You may have to pay rent, transportation, insurance and stuff like that. OK. But before you add a coffee shop latte every day because you like to study there, or a pizza in a nice restaurant rather than a sandwich at home, you should put something into the savings or investment account. Don't build up debts (and bills to pay) for things like online gambling or weekend recreation if you are not saving.(2 votes)
- So this chapter mean that 50/30/20 is actually 50/20/30 by order of priority.(3 votes)
- Are the numbers listed in order of their numerical value, or in the order of their importance? I don't think it matters which, so long as you follow those numbers in the terms for which each is assigned.(1 vote)
- This goes against everything I’ve ever learned in church lol(1 vote)
- What were you taught about financial literacy in church?(4 votes)
- What if I want to buy a house that costs 1,000,000 $ now & I want it in 5 years,
The price of the house is expected to rise during this period & inflation can occur, how much should I save per month?(2 votes)- I see that you are back after about 5 years of not asking much here. I note that at your last profile update, you were 24 years old. Is that the case now?
The answer to your question depends on whether you wish to save the full purchase price of your desired house when the time comes to buy it, or whether you are only saving for the down payment. The answer also depends upon what resources you already have (are you starting from zero, or do you already have something?). Last of all, and this is always the question with real estate, is your location. In some places, like Pakistan and Turkey, inflation is totally out of control. So, what $1,000,000 will get you in 5 years may be a considerably smaller house than the same amount of money will get you today.(1 vote)
- It was mentioned earlier in this corse of a saving strategy where you round up the change on any purchase you make and deposit the round up amount into a savings account.
What is the actual name of this strategy?(1 vote)- If you want a way to incrementally save without having to think about it, round-up savings apps are excellent tools that are worth the time and energy. They automatically transfer money to your savings with each transaction, letting your savings slowly build up over time.(0 votes)
- I dont get how in the semi months how there are 24 semi months because if only half of the months in the year dont have exactly four weeks, then just divide 12 months by 2 and thats how many moths you'd have in a year without exactly having four weeks. It is in2:46(1 vote)
- There are many ways to do this. You can use the Julian Calendar (instead of the Gregorian one) and use 365 instead of 12. Divide those days up into units of whatever length that works for you. The important thing is to plan, and to feel free to modify your plan for something different when needed.
Don't fail to plan, though.(0 votes)
Video transcript
- [Instructor] You might
have heard the term, paying yourself first. And this just means put
your safety, your needs, especially your future needs first before you think about other things. So let's give ourselves an example. Let's say that you wanna
buy a laptop that is $624 and you currently do not have
the $624 to buy that laptop. And that laptop will
help you with your work, maybe it'll help you with school or it can help your family in some way. It can also provide other
benefits that you want. So you want your future
self to have this laptop, and you say, I want this laptop over the course of the next year. So you want this in a year. The paying yourself first
philosophy would say, all right, every paycheck,
how much do I have to put aside first
before I do anything else to make sure that I'm gonna
get my hands on this laptop? So let's have an example. Let's say that I'm paid weekly. If we are paid weekly, how
much do we have to put aside for every paycheck in order
to at the end of the year have $624 saved up for the laptop? Well, if we're thinking weekly, we have to save that $624
over the number of weeks in a year. So we're gonna divide that by 52 weeks. And you could do that by hand or you could punch that into a calculator. And you're going to see that
you're going to have to save $12 per week which
doesn't feel like a lot. And so what you would
do is every time you get that paycheck before you even
think about anything else, you would take that $12 and transfer it maybe into a savings account. That's kind of your laptop savings fund. What if you instead of
getting paid weekly, you're paid biweekly. So that means you're getting
paid every other week or every two weeks. Well, then you're going to have to save twice as much since it's not covering just one week of savings
it's two weeks of savings. So in that situation it's going to be $24 per every two weeks. What if you are being paid semi-monthly? And you might think that these are similar that if you're paid every other week or if you're paid semi-monthly which means you're paid twice a month, but months don't have exactly four weeks or at least most months don't
have exactly four weeks. And so the way that you would
calculate for semi-monthly is you say all right,
there's 12 months in a year so there's 24 semi-months in a year. So it would be $624 divided
by those 24 semi-months I guess you could call them. And then that would get you $26, $26 per semi-month. And then last but not least,
if you're paid monthly and I'll do that in a
different color for kicks, if you're paid monthly, well, then you're gonna take that $624 and divide it by the 12 months and you would wanna set
aside $52 per month. So this video it gave us
a little bit of practice thinking about our paychecks
whether we're getting paid weekly, biweekly, semi-monthly or monthly. But it's really thinking about, hey, you have a pretty big goal over here, but if you divide it by
the number of paychecks that you're getting in a year, you can then think about how
much you have to set aside paying yourself first every paycheck so that it will add up
over the course of a year whatever time period
you're thinking about, so that you can get and reach your goal.