Put Your Paycheck to Work: Easy Ways to Invest Your Paycheck

As you navigate life, whether you’re a young professional new to the workforce, or a seasoned employee with retirement in the near future, it’s crucial to know how to invest your money. This is important for both long-term financial stability as well as building useful money habits to prevent impulse spending and debt.

By learning how to properly allocate your paycheck, you’ll set yourself up for success later down the road and make it easier for you to accomplish your financial goals in life. Continue reading to discover our tips!

Consider Your Financial Goals

It’s important to first look at your money through the lens of your financial goals. Depending on what stage of life you are in your goals may differ.

Young or new professionals, parents, and senior retirees are all going to have different strategies to achieve their financial goals, as well as different levels of ability to save and invest their money. Saving your money for the future is half the battle when it comes to tackling your financial goals.

If you’re in the stage of looking to purchase a home, it’s crucial to know how much house you can afford. By knowing how much money you can borrow to spend on your new home, you can budget and plan appropriately. Paying off a mortgage is no easy task and usually takes decades to fulfill.

If you’re a parent or soon-to-be mom or dad, it’s best to start thinking about and saving for your child’s education through a 529 plan; the sooner, the better!

If you’re a retiree or looking to exit the workforce, downsizing to a smaller house or relocating for retirement will require some financial planning as well.

Even if you have no immediate financial goals to achieve, learning how to manage your money and budget appropriately are good skills to have in life. Beginning to save and invest as soon as you can allows you to build up more money over time for your future expenditures.

Starting a family, moving to a new home, taking vacations, and eventually retiring are all realistic goals that will require financial planning.

The 50/30/20 Rule

After considering your financial goals in life, it’s time to start organizing your paycheck with the 50/30/20 rule. This money management strategy divides your paycheck into three categories.

Half (50%) of your paycheck should cover your essential expenses, such as rent/mortgage and groceries, as well as your regularly occurring bills. This should cover your needs rather than your wants. This could be dependent on where you live, as the cost of living in large cities is often greater than in more rural areas.

Next, 30% of your paycheck should go to your wants, such as eating out or other non-essential expenses such as vacations, hobbies, subscription services, and the like. Cutting costs here is a great way to save money and live minimally, but it’s still important to live life and to treat yourself every once in a while! It’ll be up to you to figure out how to best budget for your current situation.

Lastly, 20% of your paycheck should be allocated to savings as well as to pay off debt. You could split it in half so that 10% goes to retirement or another savings account and the other 10% goes to debt payments. This, of course, is also subjective to your particular financial situation. It’s a good idea to put as much towards retirement as you can, but often more than 10% can be challenging, especially if you are working on paying down a lot of debt or enjoy spending money on wants.

The 50/30/20 rule is a great set of guidelines to help you organize how you spend and save your paychecks. For your individual financial situation, you may find yourself spending more or less in each of the categories depending on where you live, your existing (or non-existent) debt, lifestyle habits, and your financial goals.

Save Up

Savings can cover a variety of aspects within your financial planning and will differ for your personal situation, as mentioned previously.

If you’re a recent college graduate, saving for your first apartment or moving expenses may be best. If you’re a new parent, saving up for your child’s future costs or education may be a priority. If you’re a couple looking to settle down, you may be prioritizing a house as your next financial adventure.

Whichever your next financial obligation may be, it’s critical to keep in mind that saving up is a long-term game. Your paycheck needs to first cover all of your immediate essential expenses and then your wants and future goals, although it’s a good idea to save when you can.

Having an emergency fund (a separate savings account) is a great way to build yourself a soft landing if something were to happen. In the case of a sudden medical emergency, your car breaking down, or a surprise home repair, you’ll be able to cover the cost without worrying too much or having to dip into money that is needed elsewhere.

Plan for Retirement

Saving up is a long process, and you won’t enjoy the results of your savings until well into the future (hopefully). Saving for retirement is one of those long games, as you won’t be able to touch this money until you decide to exit the workforce and transition into retirement.

While allocating 10% of your paycheck to your 401(k) is a good start, it’s best to bump up that number as high as you can. This will again differ depending on your particular situation, since a fresh graduate may not be able to afford 10% initially but someone who has been in the workforce for a decade or two may be more financially established and able to contribute 15% or even 20%.

The more money you set aside now for retirement, the better off you will be when you finally retire. This is why it’s a good idea to budget now and practice good money habits. Retirement depends mostly on the money that you put away beforehand, and you won’t be able to retire if you don’t have enough to support yourself. Exploring different revenue streams for retirement is a good idea as you come closer to exiting the workforce.

There are many ways you can utilize your paycheck, but referencing the 50/30/20 rule as a guideline will help you optimize your savings for the future. No matter where you are in life, it’s always good to practice sustainable financial habits to set yourself up for success in the long run.

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This article originally appeared on Life on a Discount and has been syndicated by My Life, I Guess with permission.

Image Credit: Syda Productions via Canva.com.

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