Personal finance folks often throw around the term “pay yourself first.” It is a bit big-headed of us to assume you know how to do that. Here are some steps you can take to put the most popular finance advice to work.
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Plan for Your Future
The first place to make a big difference is saving for your retirement. This is an incredibly important part of your finances and most employers make it very easy to do.
First, take 100% advantage of all employer 401(k) matching. If you get a 100% match on 3% of your pay, put at least 3% of your pay into the 401(k) plan. At my company, I get a 100% match on up to 4% of my 401(k) contributions. I put 6% away automatically each month in my 401(k). This should automatically be deducted from each paycheck and deposited into your 401(k) account.
Next, put money into your Roth IRA. The maximum you can contribute to a Roth IRA each year is $5,000 if you are less than 50 years old and make less than $125,000 per year. I put $192.31 from each paycheck into my Roth automatically using my company’s direct deposit. I get 26 paychecks per year, so $192.31 per paycheck maxes out my Roth.
Beyond that, you can always put more into a 401(k) up to $17,000 per year. The same rules apply for 403(b) plans from non-profit employers.
Save For Emergencies
Next up, save for emergencies. I regularly give you updates on my liberty fund, where I put as much as possible from each paycheck. For most people, it is best to automatically transfer funds from each paycheck to an emergency fund or liberty fund account.
The easiest way to do this is by setting an automatic transfer in your bank account. A great option for this is Capital One 360. Capital One 360 has competitive savings account rates and allows for easy transfers. Ally Bank is another great option. If you sign up for 360 Checking through this link, you get $50 free for getting started.
Put Something Aside For Fun
If you don’t have fun, what’s the point! You should always spend consciously and only put your money into things that you get value from, but if you don’t budget for it, you won’t have the money when you need it.
Fun money is important and should generally come out of your checking account. You could also spend fun money on your credit cards to get sweet travel rewards, but make sure you only spend as much as you can pay off each month in full.
Don’t Forget Your Bills!
When deciding how much to put into each spending category, make sure you budgeted for your bills that you can’t live without. That includes rent/mortgage, utilities, food, phone, internet, car payments, and insurance.
When you pick your home, meals, internet, and phone plans, make sure to shop around and find the best deals. Never spend more than you have to. This will allow for more to go into savings, investments, and fun money accounts.
How do you breakdown your income into savings and spending? Please share in the comments.
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