Woohoo! It’s pay day! Time to go to a fancy restaurant and a movie with your main man!
Wait. Hold on a sec.
Is that really what happens on pay day? Spending your hard earned money on superficial activities that keep you from really achieving your dreams?
That doesn’t seem right.
Let’s step back a moment and consider what you just did the last two weeks of your life to earn that money:
- You woke up before 5 AM each weekday and *happily* trudged into work.
- You took your kids to daycare, wishing you could be staying at home with them instead.
- You prepped food for the freezer and for the fridge so you all had lunches and dinners to eat.
- You spent 80 hours of your life doing something you only half-enjoy so you could pay for that daycare and food.
You probably did all that and a lot more. So it seems like you deserved that fancy night out.
If you had a plan for your money the minute it came in, you might not have to do some of those things in the future. If you really want to stay home with your kids, your bi-weekly date night could be hurting your chances of ever getting there.
4 Necessary Actions to Take the Minute You Get Paid
You must do these four things with your paycheck the day you receive it if you want your money to work for you. It should go without saying that your budget will be a lifesaver so you can quickly and easily put your money where it should go each month. Without a budget, this process will take much too long and you’ll quit after the first time you try it.
Put money aside for savings.
A savings account can be used for numerous reasons. You need an emergency fund at the very least, so if you don’t have one make sure to put money into that before you put money toward any other savings goal. How much should you put aside for savings? That’s completely up to you, but a good rule of thumb is at least 10%.
You should put money into savings first so there will be money to put there. The best way to do this is to have a percentage of your paycheck directly deposited there so you actually never see it. If you wait until the end of the month to save, once everything else has been paid for, there will probably be nothing left.
Allocate money for your expenses through the next pay period.
Your paycheck should last until you are paid next time. There’s nothing like trying to scrounge around for nickels and dimes because you ran out of money three days before your next paycheck. It’s stressful and you don’t want to be in that place.
First, figure out what is due and when.
Write down all your bills and their due dates. You could even write them down on a blank calendar. Be sure to note when you are paid for a better visual.
Make sure your important expenses are covered.
With your budget and your due dates in front of you, determine your important expenses. For most people, these are rent/mortgage, utilities (water, electricity, gas, waste removal, sewer, etc.), gas for your car, insurance, and groceries.
If your home insurance is paid with your mortgage and your health insurance is taken out of your paycheck, then you need to worry the most about car insurance and life insurance.
If you take your kids to daycare, don’t forget to put that as an important expense as well.
Finally, any debts you have – student loans, credit card, car loan, etc. – should be categorized as important. The least you should pay for these is the minimum amount.
You might also consider church donations or charity an important expense.
On your budget, highlight these important expenses with a bold color so you can easily see what they are (note: you can do this on a spreadsheet on your computer or on a piece of paper, they’ll both work fine). Now, allocate money from your paycheck to these expenses. You don’t have to physically do it, but it would probably make a lot more sense if you did.
Make sure all your other expenses will be covered.
Your other expenses could be clothes, haircuts, toilet paper, shampoo, diapers, car maintenance and repairs, Netflix, etc. These categories will all come from your budget, and you’ll need to figure out which ones you can cover with the money that is left from your paycheck.
Highlight these other expenses with a different color and allocate money to these categories.
Use the half-payment method for expenses that are not due until after you are paid next time.
It’s likely that some of your bills are not due until the second part of the month. If that is the case, you could use the half-payment method to set aside money for these bills. For example, if your electricity bill is due on the 20th, and you are paid on the 25th, you will set aside half of your electric bill payment from this paycheck and the other half will come from your next paycheck on the 9th.
Do something smart with any leftover money.
After putting money into savings, setting aside money for your upcoming expenses, and making half payments for expenses that need to be paid next pay period, you just might have leftover money. If your goal is to be ready for anything that comes your way, you should probably do something smart with that money.
You could put more money into savings. Or you could give an allowance to your husband and yourself. Do what you think is best for your circumstances, but just be smart with it.
An Example of What to Do with Your Money on Pay Day
Let’s say it’s pay day (Sept. 25) and you get your check directly deposited in the amount of $1,500. Taxes have been taken out as well as health insurance and retirement.
Start by putting a portion of your money into savings. We’ll just go with 10%. So, put $150 into savings.
Now you are left with $1,350.
Your important expenses are your rent, utilities, groceries, insurance, daycare, and gas money. Since you are paid every two weeks, you can do the half payment method if some of these bills are not due for another two weeks.
Rent is due next week, so you should put aside the full amount for rent, $700. That leaves you with $650. If this was not the first time you were doing this and you were doing the half payment method, you would only have to set aside $350 for rent.
You have to go shopping for food tomorrow, and you normally spend about $120 each week, so take that out of $650, and you’re left with $530.
Your car needs to be filled up before heading into work on Monday morning, and that normally costs around $50. That means you have $480 left for the next two weeks.
Daycare costs $1000 for the month. Fortunately you only have to pay it once a week. Since your husband will be paid next week, you will be fine this time. Once you have done this process every single time you get paid, you should start to get ahead. After taking out $250 for daycare for Monday, you are left with $230.
The rest of your bills are not due until two weeks from now, so do the half payment method and set aside half the money now for those bills. All your utilities combined – electricity, gas, water, phone, and internet – are $250. Half of that is $125, so you are left with $105.
You pay your car insurance every 6 months, and you have a savings account specifically for that purpose. You need to put in $100 each month, so you set aside $50 this paycheck. Now you are down to $55.
That $55 could be used for charity, a haircut, clothes, or whatever your other expenses might be, but at least you know you have $55 to work with until you are paid next.
As you methodically put your money towards certain necessities each paycheck, you will find more and more breathing room. If it is your first time doing this, and you have nothing left, that’s okay. You can survive until your next paycheck. Truly, I know this because I have been living the past year just paying for necessities most months. If you are a single income household, making sure everything can be paid for each week will get even trickier. I assure you, though, that if you have a plan for that money instead of just blowing it on fancy dinners and a movie each time you are paid, you will soon find that you can go out to eat and see a movie every so often and you’ll have all your other expenses completely covered.
Charlee is a stay-at-home mom to two rambunctious and beautiful girls. She writes about her mistakes as a mom and the family finance manager on her blog, Humble in a Heartbeat. You’ll also find plenty of ways to save money on groceries, detailed posts about homemade baby food, ideas for feeding kids, and how to finally get all those pictures on your computer organized.
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