What does it mean to pay yourself first?

If there is chocolate in the house, I find it and eat it. If there is a higher amount of money in my checking account, I am much more likely to spend more liberally. This is where paying yourself first is key.

Paying ourselves first is complementary to budgeting (we use YNAB to budget). After making our budget for the month and putting in roughly our mandatory expenditures (mortgage, HOA fee, water, electric etc), I give a slightly overzealous estimate of what I want to pay myself for our emergency fund/retirement/student debt. I then estimate the remaining categories including dining out, fun money, gifts for others etc.  

From our budget, I already know roughly what I am going to pay myself before my paycheck lands in my bank account. Then when payday comes around, I transfer the money either to our high yield savings account or to our retirement account. It always takes a few days to transfer, but the point of doing it right away is knowing it is gone, meaning I am not going to spend it.  Then, when the money is transferred out, I am much less likely to go back and take that money from our high yield savings for something frivolous. I read about this concept in “Rich Dad, Poor Dad” by Robert Kiyosaki.

Example:

1st paycheck: Mortgage is paid – most of my money disappears and I have around $300 sitting in my checking.

2nd paycheck: I transfer money out to our high yield savings or retirement fund. Use the residual money to pay our credit card statement, and then roughly $300 sits in my account until the next paycheck. Repeat.

As a student this concept works too, you would just transfer your student loan money to an account that is not your primary account, and then transfer in money as you need. This is awesome because you spend less overall and don’t max out your loans unnecessarily.

Do find if you have more money in your account you are more likely to spend more liberally? How do you approach this?