Financial issues are some of the most challenging parts of life for many people. This is even more true in a tough economy. Financial difficulties are extremely emotional matters for many people, which adds an extra level of complexity to finding solutions. There are countless sources of financial advice, many of which are contradictory, so figuring out which financial strategy you should use can be frustrating. However, there are some tips that work for nearly everyone, regardless of financial methodology. Here are seven ways to use your paycheck in the most efficient way.
1. Run the Numbers
Before you make any financial decisions regarding investment options or charitable contributions, you need to know the exact amount of money you’re managing. You can’t make a realistic budget until you know exactly how much money you are bringing in and how much you are spending. This first set of calculations should cover the exact numbers for your income and necessary expenses such as mortgage or rent, utilities, food and loan payments. Once you know exactly how much money you have and how much of it is going toward bills, you can figure out what to do with the rest.
2. Account for Non-Monthly Expenses
When you are making your initial budget calculations, don’t forget about expenses that aren’t paid monthly. Income tax is one such expense. You don’t want to get to April and realize you don’t have any money in the budget to pay your taxes. Another possible non-monthly expense is insurance, which is sometimes paid quarterly. When you are running the numbers for your budget, be sure to account for these non-monthly expenses. You could do this by dividing projected yearly or quarterly expenses into monthly amounts, or by creating a separate savings account reserved for those expenditures.
3. Calculate Long-Term Savings
Part of your paycheck should be routed to long-term savings such as a retirement plan. There are countless methods and strategies for retirement, and you should research each one to figure out which is best for your situation. Your employer may offer certain incentives with specific retirement plans such as contribution matching. Once you know what kind of retirement strategy you want to use, you can calculate a reasonable amount to contribute. Saving for retirement is important, but you don’t want to risk going into debt for current living expenses by budgeting an unreasonable amount for your retirement contribution.
4. Prioritize Short-Term Savings
Saving for retirement or your child’s college is important, but you may also want to have a short-term savings plan as well. This means saving money every month to use for things before retirement. Many people advocate having an emergency fund to pay for unexpected expenses such as car repairs or job loss. You may want to save money toward a vacation or a new car. These short-term savings are important financial priorities just like retirement savings. When you are budgeting your discretionary income, try to route money to both short- and long-term savings.
5. Evaluate Your Discretionary Spending
It’s important to know you’re getting the best possible use out of your paycheck. After you’ve calculated your essential bills and savings, it’s time to look at your discretionary spending. Consistently keep track of everything you spend your money on, from pizza delivery to clothing to your morning latte. Oftentimes small expenses add up very quickly. Don’t leave out non-essential monthly bills such as cable TV, cell phone plan and gym membership. Once you see exactly how much you are spending on every single thing, you can choose what really matters to you and budget accordingly.
6. Hire a Trustworthy Financial Advisor
For many people, creating and managing a budget and retirement account is overwhelming and stressful. You may want to hire a financial advisor to help you manage your money. Reliable financial advisors can help set your budget, manage your savings or retirement and help make sense of the vast amount financial information available. Patrick Dwyer Merrill Lynch is a Top 100 Financial Advisor who practices out of Miami. He is an expert in the field and a fantastic example of what to look for in a financial advisor.
7. See the Big Picture
Going through all the budget calculations and tracking your daily expenditures can be discouraging. Especially in a challenging economy, it can feel like you’ll never have the funds to live in financial freedom. However, it’s important to take a step back and look at the big picture. Finances are just one element of a happy life and while they’re not unimportant, they’re less important than family, passion and making a difference in the world.
You work hard for your pay check and you want to make sure that money is being well spent. Making a financial plan isn’t about following a rigid list of rules, but figuring out which rules and strategies are most helpful for your life. Having a realistic view of your income and expenditures is essential for making a responsible budget. If you feel overwhelmed by all the financial advice, hiring an expert financial advisor may be the ideal solution.