The Best Way to Spend Your Paycheck

Everyone loves payday, but too many people struggle with allocating their paycheck in a way that best serves their financial needs. If you’re looking for a little extra guidance in utilizing your income effectively, we’ve compiled a list of tips below that will help you do just that!

1. Automatically deduct contributions

Your first step in managing your paycheck is making sure you are deducting the optimal amounts. Your employer will likely deduct funds for your health care plan and taxes, but you can determine how much tax is withheld by changing a few elections on your W-4. If you receive too large a tax refund for the prior year, or you’re stuck with a big bill when you file, consider adjusting the amount withheld on your W-4. Also, be sure to take full advantage of any employer-matching offers for your retirement funds — don’t give up free money! 

2. Budget for necessities 

After your contributions are deducted from your paycheck, you’ll be left with your take-home pay, or net income. You’ll use this money for covering expenses until the next payday, so it’s best to budget first for necessities, such as your mortgage or rent payments, utility bills, insurance premiums, etc. You can use the “envelope system” to actually put cash away for necessities or set up a detailed old-fashioned budget, which prioritizes your needs. You can also choose to use the “50/30/20 budget” that sets aside 50% of your income for needs. 

3.     Budget for wants

Once you’ve set aside money for your needs, you can use some of the remaining funds for wants, or discretionary expenses. This can include entertainment costs, dining out and clothing, in addition to what you really need. Here, too, you can put away the cash you need for a spending category into an actual envelope, mark down the amount you can spend in that category on a paper or in an app budget, or simply keep in mind that 30% of your paycheck can be spent on these expenses. 

4.     Pay yourself 

Now that you’ve taken care of your needs and wants until the next paycheck, it’s time to think about the future. Put a percentage of the remaining funds into savings, including IRAs, college saving plans, CDs, investments, emergency funds and the like. Use your predetermined amounts, or 20% of your take-home pay, if using the 50/30/20 budget. If you have any outstanding consumer debt, be sure to pay toward it as well. 

Community Financial offers a variety of options to help you get the most bang for your buck. Check out our website for more details on Certificates of Deposit, Money Market Accounts, Investment options, and more.

5.     Don’t feel forced to spend it all

Many people mistakenly think they need to spend all of their paycheck before the next one arrives. If you’re left with extra money at the end of the month, there’s no need to waste it. You can beef up your savings, get ahead of your debt or stash some cash away for an expensive time of year, like the holiday season. If you’re looking for a different way to save, Community Financial’s Holiday Club allows you to do just that. By setting up recurring transfers or depositing directly into the account, your money stays safe and secure while you get ready for the next holiday season.

Learning how to wisely manage a paycheck can take some time, but once you’ve got the hang of it, it will be easy and almost happen by itself. Our financial representatives are available in-branch, over-the-phone, and online to help you create and stick to a budget that makes sense for you. Reach out at (877) 937-2328 or at cfcu.org/contact to start taking control of your finances today!

Your Turn: Do you have any tips on paycheck management? Share them with us in the comments.