So, today we’re going to be talking about the five steps you need to follow when you get paid. The very first step that most people follow is they go to the bank, and they cash their pay cheque; WRONG MOVE
So the very first step that you want to follow when you get paid actually comes from this book right here, it’s called “The Richest Man in Babylon,” which is one of the best books I’ve ever read out there, just on basic money skills.
But, this is a concept called pay yourself first
PAY YOURSELF FIRST
And where people go wrong when they get paid is they often times immediately start paying everybody else except for themselves.
They pay the cable company, they pay the utility company, they pay for their mortgage, and I’m not saying don’t pay for these things, because obviously, you have to, but what I’m saying instead is, on payday, you immediately take a portion of your pay cheque out from your total pay cheque, and you set that aside in your savings.
Now, you don’t have to go crazy with this at first. In fact, you could start with just 1% or 2% of your pay cheque. But you want to get in this habit of, on payday, taking a chunk of that money and setting it aside for yourself.
Now, most experts out there recommend saving and investing anywhere from 5% to 20% of your pay cheque, and I know that’s a lot of money for most people. So again, you can just start with just 1% or 2%, but I definitely recommend working your way up from there.
And one thing I will recommend is you take this money, and you’re going to put it in a separate savings account. There are a number of different online savings accounts out there, KUDA, VFMD etc, which is a lot higher interest than you’re going to get from a traditional bank out there.
Put that in a separate savings account, that way you don’t confuse it with any other money out there. This is going to be your emergency fund or your rainy day fund. And the first goal you should have for yourself is to save up to $1,000 in this account that will serve as your emergency fund.
Step number two when you get paid is a simple one, but a lot of people don’t think of it, and that is to go to the gas station and fill your car up.
FILL UP YOUR FUEL, GAS etc
So, a lot of people don’t think of this, and this is what they end up doing. They get their pay cheque on Friday, they cash that pay cheque, they go out and blow money all weekend, and then Monday morning comes around, they’re rushing to work, and they realize that they have no fuel or wants to cook and no gas
So, on payday, right after you pay yourself, the next step is to go to the gas station and fill your tank up with gas, because you’re going to need it anyway.
All right, so step number three when you get paid is a simple one, but that is to go to the grocery store.
BUY FOOD ITEMS IN BULK
So, I wanted to show you guys just how much more money you spend by buying fast food versus making stuff from the grocery store
And not to mention, most people buy both breakfast and lunch out of the house, so you can easily double those savings by preparing your meals at home, but also doing the same thing for lunch, and bringing your own lunch to work.
All right, guys, so step number four when you get paid is, in my opinion, one of the most important ones, because this is an area where people totally just blow all of their money, and that is your entertainment expenses.
SET A BUDGET FOR ENTERTAINMENT
So what I actually recommend doing, is not only having a budget for your entertainment expenses, but actually taking that money out of the bank, and I’m a big fan of the envelope system, and literally put that money inside an envelope labelled entertainment expenses.
So, right here, I have $100 cash. Let’s say, for example, that was my entertainment expenses for the next two weeks.
Well, what you would do, is when you’re going out to the bar, or when you’re going out for a meal with your girlfriend, or whatever, you’re going to take that money out of this envelope.
And the key is, and this is where most people go wrong, once the envelope is empty, you don’t spend any more money on entertainment until you replenish that envelope on your next payday.
So, figure out in advance what you’re going to be spending on entertainment, put it in an envelope labelled entertainment, and only spend what it is that you have here.
All right, guys, and number five, the fifth and final step when you get paid, after you’ve followed the steps prior, is to start paying off some of your debt.
PAY OFF SOME OF YOUR DEBT
Now, a lot of people may argue with me on this one, as far as should you be saving money before you start paying off debt, and I think you should have a $1,000 cash cushion saved up as a minimum before you start paying off your debt.
Because, as good as it would be to put the majority of your pay cheque toward your debt, well, if next week you turn around, and you have a need for cash, you’re going to be in that exact same situation.
Now, there are basically two schools of thought when it comes to paying down your debt.
One is to pay simply pay off the highest interest debt first, which is what makes most sense financially. The other strategy a lot of people actually like to follow these days is to pay off the smallest amount first.
But, that’s up to you guys, whatever strategy makes more sense to you, but once you follow these other steps, and you have that emergency fund in place, it’s now time to begin paying off that debt, and eventually getting to a point where you don’t have any of that bad debt.
Those are the five steps that I recommend taking when you get paid.
Let me know what you think down in the comments section below.
I hope you enjoyed it, and I will see you at the next one.