Pay Yourself First Through Automation
Automate the transfer to future you and split every raise so laziness works in your favor.
- Difficulty
- Easy
- Time to result
- ~months to results
- Steps
- 3
- Confidence
- 90%
Pay Yourself First means diverting money to your future self before any other claimant gets paid, and the hosts insist the key is automation, not willpower. Because sticking money aside takes discipline and discipline is scarce, laziness usually wins — so you remove the decision by auto-enrolling in a 401k. Every time you get a raise, split it: half to take-home pay, half to your contribution rate, so you painlessly get used to living on less. Over 15-25 years those little dribs and drabs of dollar-cost-averaged contributions compound into sums that shock you when you log in. Automation turns your laziness into an asset.
Origin
Larsgaard traces the compounding lesson to his dad, who explained that at some point invested money works harder for you than you can work for yourself — like a roller coaster where you climb the hill grinding, then crest it and let the money take off.
Core principles
- 01Pay yourself before anyone else lines up for your money.
- 02Automation beats discipline because it removes the decision.
- 03Split every raise between lifestyle and savings.
- 04Small automatic contributions compound into shocking sums.
How to run it
- 1
Automate the contribution
Set up automatic withdrawals from your paycheck into your 401k so the money is gone before you can spend it.
Pro tip Automation lets you overcome laziness instead of relying on discipline you may not have.
- 2
Split every raise
When you get a raise, put half toward your take-home pay and half toward increasing your savings rate.
Pro tip A 4% raise becomes 2% more spending and a 2% bump to your 401k.
- 3
Nudge and leave it
Raise the contribution percentage a point each year and otherwise let it run, checking in about once a year.
Watch out The same auto-escalation that builds your 401k is used against you via creeping subscription price hikes — apply it deliberately in your favor.
In the wild
Larsgaard describes contributing small amounts every paycheck via dollar-cost averaging for 15-25 years without watching it closely.
→ You eventually log in and think 'holy crap, how did it get to be like this' — small automated drabs compounded into a large balance.
Common mistakes
Relying on discipline
People who don't automate must consciously stick money aside each period; because that takes discipline, they avoid it and never save.
Is it for you?
Best for
Anyone whose good intentions get beaten by inertia.
Not ideal for
People with no stable income stream to automate from yet.
From the transcript
“automation is what helps me overcome my laziness so automating it having that 401k set up on repeat”
“if you get a 4 percent raise well increase your contribution to your 401k by 2% and increase your take home pay by 2%”
From the episode
Joel Larsgaard & Matt Altmix: Our Top Personal Finance Hacks for Millennials
Joel Larsgaard & Matt Altmix