3 things to do as soon as you receive your salary
This story is part of CNBC’s Make It’s One-Minute Money Hacks series, which provides simple, straightforward tips and tricks to help you understand your finances and take control of your money.
Whether you get paid once a week, once a month, or somewhere in between, you should always aim to get the most out of your salary.
While it may be tempting to splurge on a purchase you have in mind, you can best set yourself up for success by following three simple steps as soon as direct deposit hits your bank account.
1. Contribute to your 401(k)
Take a minute to review your 401(k). First, you’ll want to make sure you take advantage of any matching contributions offered by your employer. Try to contribute at least as much as your business matches so you don’t leave free money on the table.
Next, consider increasing the percentage you contribute to each paycheck. Experts generally recommend 10% or more, if you can afford it. Besides helping you save for retirement down the line, putting as much as you can into your 401(k) has the added benefit of reducing your taxable income.
If you earn $50,000 a year and contribute 10% or $5,000 of that amount to your 401(k), your taxable income is reduced to $45,000. When you decide to withdraw your money in retirement, you will pay taxes according to the tax bracket for which you qualify at that time.
2. Take care of your savings
Once you’ve managed your long-term retirement savings, the next thing you’ll want to do is contribute to your short-term savings. Financial experts recommend automating this process so that funds are deducted directly from your paycheck before you have a chance to spend them.
This strategy is called pay yourself first and requires you to treat your savings as a fixed expense. This means you put money aside as soon as you get it rather than waiting to see how much you have left at the end of the month.
The popular 50-30-20 budgeting strategy recommends spending 20% of your income on savings and investments if you can afford it. But whatever amount you can contribute, be sure to automate it so you don’t end up spending it first.
3. Budget for your fixed expenses
Finally, look at your budget and write down how much you’ll need to spend on fixed expenses like rent, utilities, and insurance. Are your expenses on track to allow you to cover them without carrying a balance on your credit card? If not, adjust accordingly.
This includes staying above any debt you have. Prioritizing the payment of your debts will prevent you from falling behind and having to pay additional interest.
Once you’re sure your essentials are taken care of, you can spend the rest of your money on whatever you want with peace of mind that your budget is in good shape.
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