Most people, if not all, rely on their paychecks to satisfy their basic needs and wants, pay their bills, and save money for future uses.
One thing is true with paychecks, that is, a lot of people feel like millionaires when they receive their paychecks and, few days later, they feel broke.
A lot of people will spend their money faster than a blink of an eye. That's not what a good financial planning is about.
Some, on the hand, will spend their paychecks on other things such as utilities, car loans, savings, emergency funds, among others. There may be thousands, if not millions, of ways on how to spend paychecks.
In reality, the different ways of spending can be summed up into two simple, basic categories (i.e. “spending it the right way” and “spending it the wrong way”).
If you want to get started with financial planning, one of your stops should be improving how you spend your paycheck.
Let's dig in and see how one can improve his paycheck spending habits.
Financial Planning : How To Spend Paycheck Wisely
Here are people's bad habits when they receive their paychecks and what can be done to overcome them.
A lot of people are guilty when I say that they use their hard-earned money to go shopping.
Their decision to go shopping may be based on a combination of different factors such as the current trends, the immediate satisfaction, among others.
They go to shopping malls or go to the internet to buy the products they have longed to have for a very long time. For some, they think more about what they will buy once they get their paychecks and not where they can save their money or how they can further grow their money.
Many people tend to focus on the immediate desire to purchase products, but fail to see that money can be spent to on something better (i.e. investments, education plans, and retirement accounts).
This is one of the reasons that people live from paycheck to paycheck.
Solution: If you are one of these people, it is best if you pay more attention on how you can save money or grow your money and not think what products you can buy using such money. This is a good rule for financial planning.
The internet is a vast repository of information on investment and savings vehicles that people can leverage to better inform themselves about savings, investments, and disciplined spending.
2. Eat out
Attach the obvious when you're working on your financial planning. The obvious in this case is eating out.
According to the Bureau of Labor Statistics, in 2013, 39.8% of food expense was dedicated to eating out (i.e. away from home food expense) while 60.2% was spent for at-home food expense.
From these statistics, it can be said that food expense outside home is over 50% of the money spent on at-home food expense.
People have different reasons for eating out. Some people eat out because of convenience. Some eat out because of lifestyle and social status. Some eat out because they like to try new foods.
In general, people just like to eat. That is just human nature. But many people eat out a lot especially when they get their paychecks.
Whenever my wife and I stop by the grocery stores during paydays, I always tell my wife that there are a lot of people who are eating out when paydays come. It turns out I’m always right about such statement.
There really isn’t wrong with eating but there’s something wrong with the picture when money spent on eating out is bigger than money dedicated for utilities, basic needs, and savings.
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Solution: If you are one of these people, then, eat out less often, buy groceries, and cook at home.
When these activities are consistently done, you will see that your food expenses will go down, which will free up some money for savings, utilities, investments, among others.
It is always best to eat at home because you can cook any food you want and you exactly know what the ingredients are in your food.
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3. Pay minimum on credit cards
When it comes to paying bills, many people will only pay the minimum due amounts on their credit cards once they get their paychecks.
On a financial planning scale (I made that term), it's at the lowest range. This means paying minimum is not a good way to improve your finances.
A lot of them pay their utilities and other basic necessities first before they make any card payments. They may also spend their money on other products before they pay their credit cards.
The decision to pay for necessities first and credit cards second has both good and bad effects. It’s good because basic needs are addressed first but bad because a lot of people will only end up paying the minimum amounts in their cards.
This scenario is especially applicable to those who don’t make enough money to address both their needs and debt. As many know, when you only pay the minimum, your credit card companies will charge you interest on top of interest and outstanding principal.
This is really where a lot of people get into credit card problems. They tend to say that they can pay the minimum, still charge on those cards, and they will still be fine. The truth is, credit card debt will just pile up.
Paying more than the minimum will reduce both your principal and interest. Next, don’t use your cards if you are unable to pay them in full when they are due.
4. Pay yourself last
A good tip for sound financial planning is pay yourself first.
A lot of people have been accustomed to paying bills and, then, saving in that particular order. Sometimes, when you do that, you are running the risk of not having enough to put into savings.
The best advice I’ve gotten from my mentor is to pay myself first.
What it means is before I pay my bills and other necessities, I pay myself first by putting money right away into my savings, investments, and my daughter’s college funds.
I believe that paying oneself is key to maximizing one’s wealth. When I get my paycheck, the funds for retirement, savings, and college funds are automatically deducted. Instead of me manually putting money to different saving vehicles, my employer directly places those funds (with my permission) in those vehicles.
When I get my paycheck, I don’t have to worry about putting money into savings because it’s automatically done. When I receive my paycheck, then, I am restricted to using the amount of money I receive.
Solution: Pay yourself first. If your employer doesn’t provide the kind of service that my employer provides, you can always set up accounts, which you can use for transferring or depositing money.
Just remember that you need to pay yourself first. As always, there’s a learning curve on this practice. But once you get feel of it, then, this activity will be second nature to you.
5. Spend paycheck on investments not fit for you
Always remember that all investments are not created equal.
Successful investments rely on several factors that include how much knowledge you have about your investments, the benefits and risks of such investments, luck, among others.
One tip for a good financial planning is to never buy an investment that you are not comfortable investing on. Don’t buy them just because the herd is buying the same things.
Remember, your situation and needs may be different from theirs.
Solution: It is always best to sit down and take note of your needs, situations, and other considerations. Make sure that you understand what investment options you have along with their risks and benefits.
The power of knowledge and awareness is a key to having successful investments.
Many people are living paycheck to paycheck with little to savings for investments and other necessary funds. If you are in this situation, it’s best if you take a look into how and where you spend your hard-earned money.
It is by doing this that you’ll understand where you are with your finances and how you can best proceed with bettering your situation.
6. Spend money on parties
A lot of people especially young people will use their paychecks to go clubbing and go to other parties.
These people will drop some money without worrying about their bills and other responsibilities that need more attention. As a result, they can easily lose track of their money and end up finding other ways to address their needs.
They may also end up borrowing from somebody else to pay for what they need.
When it comes to financial planning, spending money on something that is not necessary should be given close attention to.
Solution: If you are one of these people, it is best to sit down and see if you have extra money for entertainment and not the other way around.
If you decide to do some parties without fully understanding how your money should be spent, then, there’s a possibility that you will fall short on funds.
Final Thoughts On Good Financial Planning
Anything in excessive is not good.
You can always find time to spend money on shopping, eating, among others but it is advisable to limit them in moderation.
What else do you think people are spending on with their paychecks? What do you think are the best things one needs to consider when it comes to making good financial planning for your future?