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Pay Yourself First: Enjoying Financial Rewards on Payday

Getting a paycheck

It’s payday and your weekly, biweekly, or monthly earnings have just hit your bank account. Depending on your current financial situation, you might automatically use your earnings to pay off your bills and debts. But, it’s important to enjoy the financial rewards of working and to try to set some money aside for future goals or for an emergency. When dividing up your earnings on payday, try to pay yourself first, so that you don’t end up shortchanged at the end of the month.

Your Savings

If possible, try to set up your bank accounts so that some portion of your paycheck is automatically deposited into a savings account or retirement account on or near payday. You can set up an account that’s separate from your checking account and have a percentage of your income automatically transferred to that account the day you get paid or the day after. If you are contributing to a retirement plan through your job, the easiest thing to do is to have a portion of your paycheck funneled directly into the plan each pay period, so that you never see the money.

Your Bills

Once you’ve paid yourself, you can focus on paying your bills and other financial obligations. Creating a budget can help you see where your money goes each month and whether or not your financial obligations are too much compared to your actual after taxes and after savings income. If you think of all your obligations as debts, it’s usually recommended that you keep them to less than 43 percent of your total income.

The Rest

You’ve taken care of savings and necessities. Any money remaining you can look at as “fun money” and use as you want, whether it’s setting it aside for a future goal, such as saving for a vacation or major purchase, or using it to enjoy a meal out at a restaurant. You can also try to maximize the financial rewards of any money left over by putting it towards any credit card debt or other debt you have.

Figuring Out the Amounts

Before you can figure out how to divide up your paycheck each payday, it helps to know what your financial goals and obligations are. Although there are general guidelines that recommend contributing X percent of your income towards retirement or saving X percent each month and the general guidance is to keep your debt to income ratio on the low side, your particular circumstances might be different from what the recommendations are.

If you are currently working on paying off a lot of debt, you might only be able to put one or two percent of each paycheck towards your savings or retirement goal, and you might not have any money left over for fun purchases. As long as you are working towards your goal to get out of or drastically reduce your debt, putting aside what you can for savings, even if it’s just a small amount, is OK.

You don’t have to figure out how to best divvy up your paycheck on your own, either. If you need help making a plan to pay off your debt or to make the most of a limited income, we can help. Contact us today for credit counseling or for assistance in making decisions about your money that will help you now and in the future.

Image Source: Flickr

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