Have you ever wondered how to win on payday? Some call it a budget, others say it’s a spending blueprint, whatever term you prefer, it’s important to have a strategy to slay your payday money routine. As payday approaches, it can bring on a sense of relief, excitement, or mere curiosity. To guarantee a win on each payday, it’s important to create a simple money routine.
Before your next paycheck, it’s important to know what bills have yet to be paid and what expenses are coming up. If you have money left over from the previous paycheck it’s time to give that money a job.
A day or two before that direct deposit hit my account, I review my current balances in my checking, savings, credit cards, and investment accounts. Rather than logging into each of the accounts, I use Personal Capital to give me a quick glance at my financial state of affairs.
As I shared recently on IGTV, click here to watch the video, I use this excel spreadsheet to track my monthly spending. I shade each cell in yellow if the payment is pending and green once it’s cleared. I reconcile bank accounts with the budget spreadsheet.
Since our paydays are pretty consistent, it makes budgeting and planning fairly simple. We get paid on a bi-weekly basis and have little variation in our paycheck amounts.
Whatever cash remains from the prior pay period, I move into one of several buckets. Sometimes we have money left over if we’ve come under budget in a certain area.
For example, If I budgeted $150 for groceries but only spent $130, I allocate that money to a new category. Perhaps, I move it into the “fun money” bucket, dining out, travel fund, or just move into a brokerage account.
Some people opt for a “zero balance.” I like to keep $100 in my check account. Anything less means I overspent and anything more means I didn’t give every dollar a job.
If you are paid via direct deposit, you might get access to your paycheck stub a night or two before the direct deposit hits your account. It’s important to review your paycheck stub.
For salaried workers, your paycheck may not vary. However, if your income fluctuates it’s especially important to review your paycheck stub. What you will want to look for any inaccuracies in hourly rates, the total number of hours worked, paycheck deductions such as taxes, healthcare premiums, and other deductions.
Even if your paychecks are consistent, it doesn’t hurt to take a glance every now and then to confirm everything is as expected. Did you know that more than half of the U.S. workforce have uncovered errors on their paycheck?
One thing that stopped me from increasing contributions to my retirement account was not understanding how the contributions would affect my take-home pay. Check out PayCheck City calculators where you can enter your paycheck information and play around with 401k contribution amounts.
The 401k calculator will show you how increasing your pre-tax contributions will affect your take-home pay. To learn more about How to Save More Money by Reducing your Taxable Income, check out this article.
Now that you have reviewed your paycheck stub, it’s time to pay yourself first. Before your hard-earned dollars get to you, you’ll already notice a trim on your earnings. However, paying yourself starts there.
If you have access to an employer-sponsored retirement plan, such as a 401k, be sure to contribute to it as early as you can. If you don’t have access to an employer-sponsored plan, consider opening an individual retirement account (IRA). Both the 401k and IRAs offer tax benefits. Some employers will offer to match a percentage of your 401k contributions.
The next step in paying yourself first is setting money aside for your financial goals. Whether you are building an emergency fund or building your investment portfolio, paying yourself first is a must. Saving for the future is key to reaching your financial goals especially if you are interested in financial independence.
Banks have made it simple to set up automatic transfers from your checking account to your savings account. I recommend keeping your savings and checking accounts in different banks to create a tiny hurdle or at the minimum, delay, in accessing funds in your savings accounts. It’s a bit inconvenient but inconvenient money gets saved.
Paying yourself is key to having a winning payday routine and a healthy money habit.
I like to joke I get paid on Friday and I’m broke by Monday. This doesn’t mean I went on a weekend shopping spree, generally. It means that those automatic payments have kicked in.
Automating finances by setting up automatic payments has made managing our financial lives so much easier. Most of our bills and living expenses are paid with one of three credit cards. We have set up most of our living expenses to be charged to the credit cards.
Rather than waiting until the end of the month, I pay the balances on the credit cards every paycheck. Since our paydays are on Fridays, I schedule the payments to the credit cards then and the payments are deducted from our checking account by Monday.
Automatic bill payment to the credit cards and scheduled checking account withdrawals is the system we’ve used for years and has worked so well for us. The key thing here is to find a system to pay your bills.
Be sure to prioritize your bills between your needs and your wants. Living expenses like food, transportation, and housing costs are most important and can take the biggest portion of your income. Saving money in these three categories can catapult you to reach financial independence faster if you invest the savings.
Don’t forget loan and other debt payments. Once you’ve earmarked money to pay for your living expenses, you can include a few miscellaneous essentials.
Any expenses that aren’t automatic like grocery, dining out fuel for the car, etc are also charged to the credit cards. I manually schedule payments for expenses that may not be automated. If you have struggled with credit cards in the past, skip credit cards altogether and simply schedule payments through your checking out.
One of the reasons, actually the main reason, we use credit cards is because we enjoy traveling and using travel hacking techniques and credit card churning to help fund our travel adventures.
Following the steps above for a simple money routine, will help you master your payday routine.
Now that you have saved for retirement with your pre-tax income, paid yourself first with your after-tax income, paid for your needs, now it’s time to spend freely on anything else. (We consider giving as a non-negotiable or fixed expense. I include it as part of our monthly expenses.)
Spending freely is my favorite way to spend money. Spending it guilt-free on anything that we can think of.
Since we are debt-free, except for a mortgage on a rental property, we have a bit of a buffer. Even so, we try to find inexpensive and frugal activities.
We eat out a lot less than we once did. And we also try to reduce costs when we can. For example, using Mint Mobile and Boost as our cell phone carriers.
We prefer to use “extra money” to fund our dream of financial independence. It wasn’t always easy to be proud of our financial accomplishments, but today we are making progress. We are mindful and intentional about how, what, and where we spend money.
What I have learned is that having a money routine will not only give you a win on payday it sets you up to win on consistently on your money journey.
To guarantee a win on each payday, it’s important to create a simple money routine. Understanding where your money is going before you get it will ensure that your expenses are covered and you can achieve your money goals.
I challenge you to have a payday routine before your paycheck arrives. Sign-up for the free money management journal here to create a paycheck routine.
Income can be divided into two categories, earned income and unearned income. Earned income is…July 16, 2020