Is there a working person walking this earth that doesn’t look forward to payday? I mean, it’s one of my favorite days and will likely never get old. Interestingly enough, my excitement is not for the reason you may think… to spend it all on things like traveling, new clothes or pricey dinners with my friends (although these are things that I enjoy). I love payday because it’s yet another chance to get closer to my financial goals. Seriously! I mean business on payday, okay! If you’re eager to meet your financial goals, I want to share a few tips on what you should do on payday. Keep reading to learn about 5 things you should do with your paycheck on payday.
Common Mistakes to Avoid Making on Payday
Before diving into the list, I want to discuss the things you SHOULD NOT do on payday. This is especially important if you’re trying to reach your financial goals any time soon.
Not Having a Budget
I’ll get into the importance of having a budget a little later in the post. But not having a budget is one of the biggest mistakes you can make on payday. How are you supposed to know what you can do with your money when you don’t know what’s going on with your money? Surprise expenses are never fun and you should avoid them at all costs (yeah, I know some things still come up no matter what). Having a budget helps minimize those surprises. It serves as a plan for your money, so that when payday comes, you know exactly what you need to do.
Not Paying Your Bills on Time
I think this one is pretty straight forward. Not paying your bills on time will just cause more problems for you in the future. Problems like this can have a negative effect in your credit score (read about credit scores here), and you’ll probably end up having to pay more due to late fees and interest.
Blowing All of Your Money on Nonessentials
When I was younger, I was definitely about this life! I never really neglected my bills, but I would spend most of my money having fun with my friends, buying clothes I didn’t need, traveling, and then try to save what was left over. Most of the time it was NOTHING! There’s nothing wrong with having fun and treating yourself, but you need to set boundaries. A lot of the things you’re wasting your money on will have little to no value a year or two from now. Consider that before blowing it all in one place.
Not Having Any Savings
This is especially true if you’re trying to achieve your financial goals. For most people, having savings is the foundation of that. It doesn’t matter how big or small, it is important to always have something set aside for emergencies or future plans.
Payday Rule of Thumb
Now, all of our financial situations are different. So I am in no way going to tell you exactly how much you should be putting where, when it comes to your paycheck.
In her book, “All Your Worth: The Ultimate Lifetime Money Plan” Senator Elizabeth Warren introduced the 50/30/20 rule. Specifically, 50% of your money should go towards your needs (essentials), 30% of your wants (nonessentials), and 20% to your savings.
I personally could shave down the 30% for wants and add more to my savings, but I thought that this was a good rule of thumb for those of you that want to get started. I will say that you should make a list of what your needs and wants are, and prioritize them so that you can pay them in that order. Most important items to pay attention to after your living essentials (housing/food) would be debt elimination and retirement, just an example.
5 Things to do with Your Paycheck on Payday
Step 1: Know Your budget
Having a budget is important no matter what your income is. Read my blog about budgets here. A budget allows you to make a plan for your money. When you assess your budget, you should know your income, and all anticipated expenses.
Step 2: Pay Yourself
As I stated earlier, having savings is very important. But to add to that, you should get in the habit of saving, i.e. paying yourself before you do anything else. Too many people make the mistake of treating saving like an afterthought, but you should always save first. The easiest way to do this is to set it up for automatic deduction with your employer. Automation is your friend, especially when it comes to saving!
Want to learn more about ways to save more money? Read my post here.
Step 3: Pay Your Essential Bills that are currently due
The next thing that you should do is make sure that you pay all of your essential bills (debt included) especially if they’re due before your next payday. If you can, try to get ahead of all of your bills. I normally try to get a month or two ahead if I can.
Step 4: Handle Your Necessities
After paying all of your essential bills. Make sure to get your necessities like groceries, gas, car inspection etc. and anything that you know that you’ll need in the span of time between paychecks. These items should be accounted for in your budget (Step One). If there is something you want but it doesn’t fit into your budget, see if you can add it to your budget for your next paycheck.
Step 5: Give Yourself a Cash Allowance
Believe it or not, giving yourself a cash allowance is an effective way to cut unnecessary spending, especially when you do it on payday. Think about it, when you have cash on hand, you don’t know what will arise from now until next payday. So naturally, you’re going to be more careful about where you spend your cash because you want it to last. When I was really on a tight budget, I gave myself $100 cash to spend over two weeks, and surprisingly I held on to it alot longer than I even imagined. Give it a try and let me know what you think!
There you have it. 5 things you should do with your paycheck on payday! How do you guys like the tips? Do you have a great tip to share? Let me know in the comments!