Tag: paycheck

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3 Reasons You Should Be Living Paycheck to Paycheck

I am firm believer you should be living paycheck to paycheck regardless of how much you make. This may sound counterintuitive, but hear me out. You should be living paycheck to paycheck for many reasons, but we will keep it simple and stick to three.
 
Reason #1: Every Dollar Should Have A Job
The first and most important reason you should be living paycheck to paycheck is because every dollar should have a job. The second you earn money, you should be assigning that money to make money for you! Again, this goes back to my first core principle. 
 
There are many different types of jobs your money could have. This can be and not limited to the following:
  • Emergency Fund
  • Retirement Investment Accounts
  • Brokerage Account
  • Sinking Fund
  • Saving for a downpayment on a home
  • Common monthly expenses
  • Your splurge savings
Now that you have every dollar assigned to a specific something, let’s look at two more reasons you should be living paycheck to paycheck.
 
Reason #2: Living Paycheck to Paycheck Makes You Feel Like You Don’t Have Much
Have you ever looked at your bank account and said to yourself, “Dang!! That is a lot of money, now I have money to go splurge on stuff I don’t need!”
 
Yeah, me either.
 
When you live paycheck to paycheck, you won’t run into this potential thoughts in your mind. Many people are programmed to buy things when you are bored or see a lot of money in your bank account. This is common. Technology is more intelligent and advertisements you see target the things you like. When you see an advertisement for something that looks appealing, you are more prone to buy it.
 
Keep the bank account low, and you will have already assigned your paycheck to more important things.
 
Reason #3: Living Paycheck to Paycheck Shifts Your Mindset
When analyzing how you spend money, living paycheck to paycheck will make your become more of a minimalist. This will help to shift your mindset and begin to ask yourself tough questions. Before buying something, you will become more critical in ensuring you had budgeted for the expense. The more you can do this, the more you will shift your mindset to assigning your money to always be working for you.
 
Key Takeaways:
  • Living paycheck to paycheck ensures you have a place for every dollar to be at work for you
  • Living Paycheck to Paycheck Makes You Feel Like You Don’t Have Much
  • Living Paycheck to Paycheck Shifts Your Mindset to one of asking yourself tough questions before purchases
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How I Invested Almost 100% Of My Paycheck In Retirement Accounts

Second paycheck of the new year in the books and I invested almost 100% of my paycheck into retirement accounts! This continues along with the strategy of front loading my investments at the beginning of the year. Being able to invest almost 100% of my paycheck into retirement accounts will allow me to max out my retirement accounts by the end of February. Let’s take a look at where my money went.
 
Breakdown of Second Paycheck
The total amount for my second paycheck of the year was $6,538. Of that, here is the breakdown
  • 401k: $3,269
  • VTSAX: $1,200
  • HSA: $1,000
  • Taxes: $717
  • Living Money: $352
What My Strategy Is
I have worked hard to document my strategy for this year. To read the full article of how and why I am planning to front load the year, you can click the link above. 
 
The goal remains to max out my retirement accounts by the end of next month. This will then dramatically increase my paycheck for the rest of the year and allow me to invest more aggressively.
 
Don’t Forget To Automate
One of the keys to my strategy is automation. What do I mean by automation? Here are two ways I automate my investments each month.
 
First, I set up automatic deposits for my 401k and HSA contributions. For me, I set this up through benefits with my employer. We have a landing page I can go to and can update the percentage of my check to contribute to each of these accounts. I do this for one reason and one reason only. When automating this way, I no longer see that money in my bank account. This money will go directly to my retirement accounts and I don’t have to do anything on my end.
 
Second, I set up automatic investments every week in my Vanguard account. This money is transferred on pay day as well so I end up temporarily seeing the money in my account. Again, the goal is to automate things so I have less things on my end that I need to do.
 
Executing this strategy allows me to live paycheck to paycheck in an effective manner. The less money I see in my bank account, the less money I will end up spending.
Key Takeaways: 
  • Front loading your retirement accounts is one of many strategies you can utilize for saving
  • Don’t forget to automate your investment strategy. The less you see in your bank account, the easier it will be. 
  • The cool thing about front loading is what my paychecks will look like after my retirement accounts are maxed out!

Don’t forget @TheYoungRetireeBy33’s 3 Core Principles:

1 – Your money should make money for you⠀⠀⠀⠀⠀⠀⠀⠀⠀
2 – Start early to realize the power of compound interest⠀⠀⠀⠀⠀⠀⠀⠀⠀
3 – Eliminate your largest expense by house hacking