• Wed. Apr 24th, 2024

I’m a Financial Planner: My 4 Personal Paycheck Rules That Have Worked for Clients

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Getting a regular paycheck is reassuring. But to make the most out of your earned money, your job doesn’t stop here.

Indeed, while it may be easy to forget about it once it’s deposited, there are some rules financial experts say can help you grow these earnings and enable you a more comfortable lifestyle.

By doing a few things right away, you can set yourself up for financial success.

Save First

Some experts say that you should think about your monthly and annual savings goals and set up an automatic deposit from your paycheck to your savings account.

This should be either a high interest account or a simple stock index fund, said Paul Mueller, senior research fellow at the American Institute for Economic Research.

“Pro-tip: for long-term wealth goals you can avoid taxes by funding a Roth-IRA with your savings. 10% of your paycheck is a good place to start; 20% or 25% is better if you want to see your wealth increase more quickly,” he said. “It’s important that you do this first, otherwise you may reach the end of the month and not have as much money to save as you would like.”

Vijay Marolia, CIO at Regal Point Capital Solutions, echoed the sentiment, saying that the first piece of financial advice he ever got remains the best — pay yourself first.

“For example, when people say things like, “I can’t afford to save or invest!”; it’s easy to call them out…Those same people will pay $100+ for a concert and clothing–therefore, saving $25-$50 or more per week is not only realistic–it’s a necessary first step for those who feel like their current standard of living isn’t sufficient,” he said.

 Mariola added that interestingly enough, when he first received this advice, he ignored it.

“It wasn’t until I read it in books like Rich Dad, Poor Dad, and the classic, The Richest Man in Babylon, that I really understood and then implemented the advice,” he added.

Make a Plan

Mueller also recommends taking some time each month to record your spending for that month in a spreadsheet. This helps you know how much money you spent, what categories you spent money on, and areas where you can try to tighten your belt the following month if need be.

“Consider using a cash budget for nonessential expenses. For example, if you want to limit your spending on dining out and coffee each month to $200, put $200 of cash in an envelope at the beginning of the month,” he said.

Only use that cash for dining out and coffee. If you spend that $200, the empty envelope will remind you that you’ve already reached your monthly budget and need to wait until the following month before dining out again.

“Talking with someone about your wealth and budget goals can help solidify them in your mind and also give you extra encouragement to follow through with those goals,” he added.

Have Several Bank Accounts

Another tip, is to have at least three bank accounts: a main savings account where every cent you earn from all sources gets deposited.

The second one is a checking account where you pay their bills. And the third one -or more- as a savings account for an important purchase you’ll be making in less than three years, according to Christopher Manske, CFP, CEO and founder of Manske Wealth Management.

“The second guideline is to set it up so that every single cent that they earn goes to the savings account first,” said Manske. “Most people pay a fixed amount to their savings and spend the rest because they’ve been tricked by ‘Set it and forget it.’ It’s a lot more powerful, financially speaking, to save everything and fix your lifestyle costs.”

Automate Your Savings

Other experts recommend the 50/30/20 rule, in which you use 50% of your paycheck to pay the bills and your needs, 30% for wants and 20% for savings and debt.

Make it easier on yourself by automating your savings and having a portion of your paycheck directly deposited into your savings account.

“Not saving a portion of each paycheck can leave you vulnerable to financial emergencies. Aim to save at least 10-20% of each paycheck. Start with whatever you can afford and gradually increase the amount,” said Taylor Kovar, CFP and CEO of TheMoneyCouple and Kovar Wealth Management.

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