Do THIS When You Get Paid!
Do THIS When You Get Paid
You already know that having habits and routines are a great way to better yourself. But one of the habits that a lot of people DON’T have is a paycheck money budget routine. And this is one of the habits that can contribute most to your long term financial security and growth! And I know, starting a new routine can be difficult.
Especially ones that deal with your finances. But believe it or not this one isn’t nearly as bad as you might think. In fact, in this video I’m going to share with you 3 simple techniques to manage your paycheck money in the RIGHT way. I’m Kim and if you’re ready, let’s get into it.
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Having a baseline
The first step is having a baseline. A baseline is the amount of money you need to live a comfortable lifestyle and to be able to achieve your goals. But even before talking about a baseline, let’s do a quick temperature check.
Because I know that there are those who, when they learn about the importance of budging and savings and investing, they become super obsessed and go on a three day binge of eating nothing but canned beans. And of course, that sort of thing just isn’t sustainable and they’ll eventually give up.
Yes, it’s important to save money but it’s better to gradually save a bit more each month in a comfortable fashion. It will make all of this much easier. Okay, so now back to your baseline. Like I said earlier a baseline is the amount of money you need to survive.
It also includes things that make you happy whether it’s dining out once a week or drinking your favorite Starbucks coffee every day. You should include those things so you’re not tempted to retract and grab some money from your savings.
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The point here is to be comfortable while saving. In this baseline, you have expenses. And the first one is your shelter. There is a common rule that applies to your shelter expenses and that is not to spend more than 33% of your monthly income.
I know some people spend half of their monthly income on fancy studios or apartments. I know there’s nothing wrong with renting but the point here is to live somewhere you can actually afford.
The second expenses are your bills. This includes your electric bills, internet bills, phone bills, and so on. The third expense is your groceries and the last is your transportation. You should have money left over after determining your baseline.
Obviously, if you don’t have any spare cash, you’re either spending excessively or not making enough money, and the solution is to either increase your income through a side gig, a raise at work, or a new job, OR reduce your expenses.
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If you’re spending way too much money and you’re trying to save money, don’t cut the middle expenses which are your bills and groceries. Save money on your shelter and transportation because that’s probably the most expensive thing you spend money on.
If you have a car that’s super expensive and you’re paying a loan on it, then you might think to sell that because that is where basically the most money comes out.
Now the second step is to have short-term and long-term goals. Short-term goals are goals you can achieve in 5 years or less. While the long-term is five or more years. Now, the short-term goal can be to be debt free in less than 5 years.
It can be a student loan repayment, or reducing your credit card debt, or personal loan payoffs. How do you pay debt off? Well, pay based on the interest rate NOT on the amount you owe. Paying off debts with high interest rates first will allow you to save the most money.
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Your first objective should be to pay off that debt so that you can use the extra funds for other purposes and experience less stress as a result.. Your second goal is to save up for emergencies. The rule of thumb for emergency savings is to determine your baseline monthly expenses, multiply that number by three, and set aside enough money to cover those costs for three months.
That way if something happens and you lose your job or whatever, you have 3 months to cover all of your expenses. My recommendation is to make sure your baseline is no more than 70% of your monthly income.
If it’s 90% then you’re a bit too close to the edge. Another good long-term goal is to invest in an index fund towards your retirement, or to pay off your mortgage. You can use the 33% rule on a 15-year mortgage.
It means that the home you buy has a payment that is no more than a third of your monthly income. It includes the actual mortgage interest, capital payments, insurance, and also taxes. This limits you to have an inexpensive home.
You can pay it off in 15 years if you do this, and when you add this to your baseline, you’ll have more money. If you did put money aside for retirement over a period of 10 to 20 years, use the remainder to pay off your mortgage sooner.
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Therefore, you are simultaneously paying off your mortgage and contributing to a retirement fund that will last you for 10 to 15 years. You will have a lower baseline now because you will have to spend less money to live comfortably and that’s a cool thing because, with all that extra money, you can now have fun and invest more to make more money.
The last step is to make it a habit and form a plan. I know, this SOUNDS super easy, but in reality a lot of these steps will take quite a bit of effort. They are simple in principle, but take a strong will to carry out.
The main thing is to remember this routine whenever you receive your paycheck so you are able to distribute your funds appropriately. Remember to master a routine, it will take a lot of time.
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