How to Get Your Finances in Order.

In this article we’re talking about how to save money fast for the most important things your in life. There are at least 7 crucial places your money needs to go when you get paid and when some unexpected money comes your way.

Now most people can’t get past tip number two. However, if you follow along and implement all seven of these different steps then you could find yourself in a much better financial position than you were previously. This is my primary goal for this article.

is our primary goal on this channel to help people grow financially to help them save money and invest money and make more money so that they can build that better financial future.

Why are so many people in debt?

Before we get into these tips on how to save money, first it’s important to understand why is it that so many people are in debt. Lots of people who are making fifty, sixty, seventy thousand dollars per year or more are still struggling financially.

Why? Is it that they’re in large amounts of debt? Is it the economy pitted against them? Is there a massive wealth gap? Are we being taxed too much? What’s the problem here?

While all of those different factors can have an effect on people’s ability to pay their bills, what it really comes down to, the number one factor is that most people don’t understand how to manage their money.They don’t know how to save money to begin with.

Unfortunately, it’s not taught in our schools. Our parents don’t teach us in most cases because some of our parents are in the same financial pit that other people may end up in. What happens is that their kids end up in it and their grand kids end up in it.

So it’s essentially just a system that trickles down. My hope here is that we can help with these tips showing you how to save money to kinda reverse the trend, one person at a time.

Here’s an alarming statistic. It actually turns out that about 40% of Americans can’t afford to pay a $400 emergency expense. It’s scary. They can’t afford to pay for it because they’re in such a financial hole at the moment.

What’s even worse is that for most of their lives they will never able to dig themselves out of that financial hole.

So please take these tips on how you can save money and let it work for you. So here we go…

How to Save Money When You Get Paid

 

1. Retirement Fund

Let’s talk about the first place you want to consider putting your money once you get paid. In talking about how to save money, the first place that we’re talking about here is actually before you get paid and so number one is your retirement fund.

So if you live in the U.S, you could and should take advantage of something like a 401k plan that may be offered through your employer. Now if you don’t have 401k plans there are other options as well. However, the idea is that this money should go into a retirement fund before you even see your paycheck.

One of the worst things that can happen to you is not having money when you’re old, retired and can’t work. You don’t want this to happen to you.

You don’t want that to happen to you so even if you’re in your 20s right now it’s never too early to start saving money in your retirement account. You might think well I’m not gonna retire for another 40 years what’s the point in saving for retirement?

The simple answer is that this the perfect time to do that. You can start by putting away 5 to 15% of your money before you even see your paycheck into a 401k especially if your employer is offering to match that opportunity then that’s something that you may want to consider.

There will always be risks involved in any financial decision you make. So if you have any questions or special situation, you may want to speak to a professional financial advisor.

My point is that younger people especially when they first start their jobs they opt out of the 401k. These are pre-tax retirement funds that they can invest into and they end up really hurting themselves over the long run.

If your employer doesn’t offer 401K matching there are other opportunities. If you live outside of the United States, your government may have something pretty similar to a 401k plan. I know in Canada there is RRSP.

Wherever you live, find out from your local government services or your employer and you should be able to take advantage of any such retirement programs.

 

2. Checking Account

So after that money (5-15%) get shave off for your retirement fund, the rest comes into your checking account. Your checking account is going to be your hub for everything that happens.

Your paycheck goes into your checking account. This is as far most people, about 90% of the population gets. They go into their checking account and they pay their credit cards and everything out of this and that’s essentially their savings. They don’t have anything past that.

But let me show you something here. You’re going to have a lot of the expenses and things coming out of your checking account in totally different areas and this is really important.

You can have automatic withdrawals into various different bank accounts. Having just one bank account could be a mistake. You want to consider having multiple bank accounts for different types of situations.

Now for some people they might not get automatic deposits into their account from their employer. Maybe you get paid in cash or maybe you get in an actual physical paycheck.

In an ideal world, it would be optimal to actually get money directly deposited into your account. Because then you can automatically withdraw money into different accounts for different purposes.

If you don’t the option to your payment deposited into your checking account, that’s okay. Work with what you’ve got. But if you can discuss with your employer to have your salary paid directly into your current or checking account that will cut out a lot of manual work out and everything can be handled automatically.

 

3. Necessities

Our next tip on how to save money is very important and that’s essentially paying for your necessities.

Now when I say necessities we’re talking about the bare-bones necessities to keep you off the streets and to keep you alive. We’re not talking about a TV or if you want to buy an XBox for your nephew for Christmas. None of those. They have their place in life but we’re trying to know how to save money and make a habit of it.

By necessities, we’re talking about the basic needs of people. Needs such as food, shelter, transportation, healthcare and utilities.

You take of these so you don’t get your electricity shutoff. You don’t get your water shut-off and not getting evicted from your apartment.

How much of these necessities take out of you paycheck will depend on a number of variables. Things such as where you live, how many kids and any current situation you have. This shouldn’t be an excessive amount of money.

Paying for those things are very important so you can keep alive yourself and dependants, if any.

You need to understand the difference between needs and wants. A lot of people can’t decide for the difference between those two. So you want to consider what do you need to stay alive and what do you want.

Do you need to get McDonald’s or could you find a way to lower that expense for food. Now healthcare is very important. Never skimp on health care. It’d one of the necessities that people will skimp on. They’ll skip health insurance and going to the doctor’s because they say to themselves “I’m going to save some money” but that could end up really hurting you in the long run.

So in wanting to know how to save money, understand your necessities. Pay those necessities but nothing else. Now on top of this you do want to consider paying those minimum payments as well on your cards and other financial commitments you cannot skip on.

If you skip on making the minimum payments on your credit cards, it’s going to affect your score. If there’s a student loan that needs paying, make that minimum payment or making payment on your mortgage.

So after your necessities you could think about paying those minimum payments to avoid defaulting on loans.

 

4. Emergency Fund

Everybody should have an emergency fund regardless of whether you have a million dollars in your bank account or a negative $100,000 to your name. Having an emergency fund is going to be one of the first steps to sort of alleviating some of that financial stress that you may have at the moment.

So this is going to be a crucial step in figuring out how to save to money. What’s the recommended amount of money you should have in your emergency fund?

Generally, the recommendation is to have an emergency fund that will cover your expenses for at least 3 to 6 months. But what if you have debts in front of you? What amount should you start with?

You should start with at least $2,500. However this amount is not set in stone. So you could start with $500. It could be $1,000 or $10,000 depending on your expenses and then keep adding to it.

Over time it’s nice to build this up. A great strategy for doing this is to just start by taking $10 out of every paycheck or taking 20 30 $40 out of every paycheck and putting it into that separate emergency fund.

Your emergency fund must be very easily accessible. You want it to be accessible because this is for situations where it’s a true emergency.

Typical examples of accessing your emergency fund

Maybe you don’t have any cash on you but you need to get a tooth removed. Now that’s an emergency because you’re in a lot of pain and you can’t focus on anything else because of the pain.

Another emergency would be if your car breaks down and you have to use that car to get to work. The emergency fund is not meant for things like buying somebody a Christmas gift. It’s not meant to be used for situations such as when you feel like going out to eat somewhere. And it’s not meant for vacations.

You want the emergency fund to be liquid and you want this to be easily accessible. So it’s recommended to put this money into say a separate checking account or a savings account.

Personally a checking account would probably be the best option as you may not have direct access to your savings because the money has be moved into a checking account before it can utilized. But your situation may be different so discuss this with your financial advisor.

Could you have an emergency fund in cash? Yes you can but it has a very small amount. Maybe $500 or $100 max. I wouldn’t consider having $2,500 cash laying around.

But depending on your situation. If you have a family you could have that amount of money nearby. Personally I would like to have some cash at home.

So bottom line: Even if you’re in debt or at the zero dollar mark, not having an emergency fund could push you into more debt every time there’s a little expense. So start with whatever amount of money you can put away and make it a good money habit to add to it every time you get your paycheck.

 

5. Debt Pay Off

The next tip on how to save money once your paycheck comes in is actually paying off your debt. Once you’ve built on that emergency fund and you’ve got some cushion between you and the curve balls life will throw at you, it’s imperative to start paying off your debt in a big way.

There are multiple ways of paying off your debt. However, depending on the type of person you are and the amount of debt you have, there really is only two tried and tested methods of getting rid of your debt.

One of them is called the debt snowball method and the other called the debt avalanche method.

There are a lot of people who are really struggling financially. They have large amounts of debt and they’re struggling to actually stay motivated to pay off this debt. If that fits your description, then you may want to consider using the debt snowball method.

What’s the snowball method of paying of debt?

To explain the snowball method let me illustrate it with an example. Let’s say that you have five different types of debt.

You have:

• home mortgage
• student loans
• personal unsecured loan
• credit cards, and
• a car loan

What you do with the debt snowball method is you’re going to tackle the one that has the lowest balance. So if your car loan only has $1,600 left on it, you tackle that one first regardless of the interest rate, because it has the lowest balance.

Then let’s say that your personal loan has the second lowest balance on it. You tackle that one and then you go down the list tackling the one with the lowest amount of money that you owe and then essentially eradicating those different types of debt.

You do this until you start to have less and less types of debt, until you have two debts left, then you have only one type of debt left, that will be the biggest debt which most likely will be the mortgage in this example.

It feels so much better when you start eliminating those different types of debt. When you’re paying five or six or even seven different types of debt and paying all these different utility bills at the same time, it’s definitely something that can really be difficult to stick with.

It can be difficult to get started but it pays to do it and will help you save money fast.

It’s very easy to start procrastinating on facing your debt and try to eliminate it. A lot of who are poor and have very bad credit rating do that with loans.

They try to avoid these loans they’ve taken, maybe they’ll stop taking calls from debt collectors. Maybe they’ll stop opening the mail knowing that they are past due on some of their different loans and they defaulted on those loans.

They try to just not think about it but that is one of the worst because situations that you can put yourself in because it will completely wreck your finances now and in the future.

You want to confront the situation and once you confront that you’re going to feel so much better once you start eliminating different types of debt using the snowball method.

The debt avalanche method

The debt avalanche method of eliminating your debts makes more sense mathematically and logically. It will save you more money. But it depends on what type of person you are and it depends on how much you can actually really focus on this without kind of losing some of that logic.

Again to explain this method, I would like illustrate with an example as in the snowball method. So we have the same five different types of debts listed above.

Instead of tackling the lowest balanced debt first, you’re going to tackle the debt with highest interest rate from these different types of debts.

Let’s say you owe $20,000 in credit card bills. This is pretty large large amount. Then let’s say $1,600 in your car payment and maybe $5,000 in your personal loans.

Out of all these your credit card debt has the highest interest rate which is typically close to 20% or more in the APR. So you start paying off that debt first and foremost and that’s how to save money fast on those debts.

But whilst doing that you don’t want to neglect the other debts which have low interest rates. You want to meet the minimum payments every month. Because if you miss or ignore them, it’s going to hurt your credit score big time.

So once you clear the debts wit the highest APR in interests, regardless of the amount, you move to the next debt, all this time paying the minimum monthly payments for the other debts.

 

6. 4-8 Months of Payroll

The sixth step of how to save money from your paycheck is probably going to the the most enjoyable step of this entire process saving money. It’s by saving up at least 4-8 months of payroll. Personally I try to keep this up to a year of payroll.

I learned this by reading a story about Bill Gates. When he started Microsoft he found that he was struggling to please investors. In some cases, he found that investors would be putting a lot of pressure on him.

So what he did is he saved up enough cash that gave him adequate cash in Microsoft so that he could pay all of his employees for an entire year even if the company didn’t make money.

Here’s what I learned from that story and how it relates to how to save money from your paycheck.

If you have a job and you’re taking that for granted because right now we may have a good economy. But things can go south really quickly. There are recessions that have happened where unemployment rates were really high.

If you’re an entrepreneur or self-employed then you’ll have to understand that there might be times where things go south where maybe your income drops pretty significantly.

Now if you have some money saved up in your bank account and not just a regular bank account where you’re essentially losing money by putting in a regular bank account. We’re talking about something that’s going to keep up with inflation.

You could save money in an online savings account, where you can get them for 2% interest and that should essentially keep up with inflation. When you have this money in an account like that it’s going to give you such peace of mind knowing that if you lose your job today you can live off of this money for half a year before you even get a new job.

You could also consider putting money into money markets or invest in the stock market or bonds that are more steady and predictable.

 

7. Invest

So we’ve come to the last tip on how to save money from your paycheck and that is investing. This is how you’re truly going to get money to work for you.

In our tip number six we talked about putting money in a bank account that’s netting you 2.5% interest. That’s just keeping you money with inflation. But it’s not going to make you rich.

It will be a nice thing to hold on to but investing is going to potentially make you rich. So we’re talking about real estate, stocks, bonds and other types of investments. Even perhaps possibly some riskier investments investments like cryptocurrency.

But please very comfortable with what you’re investing in whether it be bonds, the stock market or real estate, make sure you’re knowledgeable and know what you’re doing.

Basically you’re looking for something that will make your money work for you.

 

Payoff Debt First Or Invest?

Should you pay off debt first or invest first or do them hand in hand?

A lot of people ask “should I pay off my debt first or should I invest first?” And my answer is you can do some of those hand-in-hand especially if you have low interest debt.

If you have student loans that are 4% or a home mortgage that’s going to last you 30 years and it’s at 4 or 5% percent rate then you could do that simultaneously while investing.

However, if you have large amounts of debts a credit card debt or you have debt that’s going to be upwards of 9, 10, or even 11% interest on that debt, then you want to consider paying that off almost entirely before you actually start investing your money.

This is because the average return of the markets is about 7 – 10% per year. Obviously it varies quite a lot so you want to keep that in mind.

Conclusion

So we’ve talked about how to save money once you get your paycheck. Once you’ve followed these steps and you have some money left that’s when you take money and spend on TV, travel, vacations and different types of entertainment.

You have to pay yourself first before you can start doing all these other things that you may want to do. And this is a problem that I think a lot of people run into with their money management.

It’s the reason why there are people who earn $80,000 per year and are poor because they’re not taking these seven steps on how to save money.

They don’t track their money. They’re not running a budget. They’re not running themselves like a business. They just spend most of their paycheck on entertainment and other things that are not necessities. But once you pick these steps you will find yourself in a much better financial position for the rest of your life.

A Personal Advice

If you’re having an issue with actually saving money or implementing all these steps, here’s a little advice. I know a lot of people do the first 3, 4 or 5 steps and then they don’t have any money left over to invest or build a an 8 month payroll. What should you do?

What you can consider doing is picking up a side job or picking up online side hustle. Find a way to make some extra money in your free time. Then take all of that money and invest it or put it into some type of six months payroll for yourself.

If you have any questions, comments or recommendations please leave them below. All the best!