How to Spend Your Paycheck Wisely

Do you earn a decent income, but it feels like you're living paycheck to paycheck? Or you've finally landed your first paycheck and are wondering where and how to spend it? If this possibly describes you, it's good to take a step back and reflect on how to take charge of your finances. The general rule of thumb most financial experts recommend is to save first, then spend later. However, if there's no clear plan, it can be tough to stick by this principle. If you want to keep more of your paycheck, here's what to do.

Effectively allocate and prioritize your paycheck

There's a popular budgeting strategy that can help you instill good spending habits. It's the 50-30-20 rule which guides you on how to allocate your paycheck. It simply involves dividing your after-tax income into three key areas-needs, wants and savings.

This type of budget is easy to create as you don't have to spend endless hours trying to plan your paycheck. You're also able to have a clear picture of where your money goes, allowing you to achieve your financial goals faster. Let's take a closer look.

Spend 50% of your paycheck first on needs

These are your regular expenses or essentials which you need for survival. 50% of your after-tax income will pay for bills such as rent, groceries, insurance, gas, electricity, and some debt payments. If your needs exceed 50%, you can review your spending, such as looking for a cheaper electricity provider or scaling down your grocery bill.

Commit 20% to savings and investing goals

After allocating 50% of your money to your needs, you can now work on your financial targets. This is where you stash away money for your savings goals, including contributing to your 401k, investing in shares, and paying any outstanding debts.

It's also important to build an emergency fund that should cover at least three to six months of your living expenses. This means you will not have a financial crisis if your car suddenly breaks down or you lose your job.

Set aside the rest of 30% towards your wants

In general, 30% of your budget is fun money which you can enjoy without feeling guilty. These tend to be nonessential things such as entertainment, shopping, eating out, and vacation. You can also make some upgrades to your house or car if you want.

When setting up your 50-30-20 budget, ensure you have determined your after-tax income to ensure the budget can sustain you from month to month. Your after-tax income or disposable income is your gross income, less all federal, state, and withholding taxes. The disposable income should help you pay for your basic needs, wants, and savings.

Given that you put in many hours earning your paycheck, it's for your own good to ensure you spend it wisely. When you stick to the 50-30-20 budget, you will gradually adopt good spending habits, including tracking your spending, removing unnecessary expenses, managing debts and planning for your retirement. This is not to assume it's going to be easy when you think of giving up your favorite subscription if it comes to that. This can be a step-by-step process until it becomes a financial principle you live by every time you plan your paycheck.

Master your paycheck

Have you thought of automating your spending? Automation gives you more control over your finances as you pay your bills hassle-free and on your terms. Not forgetting your payment history affects the credit score, which in turn predetermines if you can access a loan.

BillyHelp will help you stay the course in making sure your payments are well-organized, and you never have to struggle with your current paycheck.