How to Manage Your Paycheck
Are you struggling financially to pay your bills? Are you living paycheck to paycheck and unclear of where all of your money is going by the end of the month? Do you find yourself constantly looking for new opportunities to make more money?
Here are some of my proven techniques for saving money and creating a financial cushion so you can build wealth.
Distribute your Funds Appropriately
My number one recommendation for building wealth is to start by distributing your funds appropriately. I have three bank accounts - two checking accounts and one savings account.
- Checking Account: Bills only
- Checking Account: Spending money
- Savings Account: Savings only
I make sure to receive my paychecks through direct deposit and divide the money between each of the accounts. Below is a breakdown of exactly how to do this.
Most of us get paid on a bi-weekly basis. The national average income is around $65,000. Depending on the state you live in and the number of dependents you have, you bi-weekly paycheck will differ. You can calculate your paycheck after deductions to get a better estimate.
If you are making the national average of $65,000 per year and have standard deductions for a single head of household then you are bringing home around $2,014 on a biweekly basis or $4,028 on a monthly basis, although this will vary by state.
Lets assume your rent is $1,600 per month therefore, every paycheck you would set aside a little bit more than half. In this example, we will set aside $900 for rent. In doing so, you are adding an additional $200 to a contingency account in the event you lose your job.
Do the same for your bills - calculate the total amount you spend your bills (cell phone, internet, cable, groceries, etc.). Let's say that adds up to another $500. Therefore, every paycheck you would set aside $300 providing you with an extra $100 in your checking account.
Now you are left with $814 however, do not consider that spending money just yet. Take a percentage of what is left and put that towards your savings account. Typically, I would recommend using the same percentage as your tax bracket. Think about it this way, if you are giving the government around 25 percent of your paycheck, you should be willing to do that for yourself. You now have an additional $400 per month added to your savings.
Now let's do the math!
Create an Untouchable Savings Account
I have always considered my savings account as untouchable. In fact, I would immediately forget I had it once transferred it from my checking account. This has helped me to curb my spending and only making intentional purchases that brought me joy. It has also helped me achieve a more minimalistic lifestyle and remove the clutter from my life.
I would also recommend selecting a high interest savings account so that you can let your money compound every month. A high yield savings account will offer you more money in interest on the amount in your savings than most standard bank accounts would. As your savings account continues to grow, so will the amount that is compounded every month. By the end of the year you will have an extra few hundred dollars in your savings that you didn't have to work for.
Never Allow More Than A Certain Amount in Your Personal Checking Account
This is another mind trick I use to control my spending habits. I never allow more than $2,000 in my personal checking account. If ever I collect more than this amount in my checking account, I immediately transfer the extra money into my savings account. This truly helps to increase my savings and by the end of the year I always have more money saved than I anticipated.You can select a number that is comfortable for you.
Overall, regardless of how much you make, it is important to manage your money responsibly. Having financial worries is an unnecessary stressor in life and can easily be managed with a little bit of planning. Establishing a financial cushion is one of the best gifts you can give yourself. It will give you comfort, peace of mind, and change the way you see money.
“Expect the best. Prepare for the worst. Capitalize on what comes.” Zig Ziglar
Try this out and comment below to share your experience. If you know anyone who might need help managing their paycheck feel free to share this with them.