Nothing quite beats the rush that comes on pay day and the knowledge that you have new funds at your disposal. But the million dollar question is: What do you do next? Should you give in to temptation and spend those newly acquired dollars on treating yourself to a few flashy new purchases and luxuries until the money runs out and you have to wait impatiently for your next pay?
Living this way is surprisingly common but also incredibly stressful – and it’s also not the way to get ahead and achieve your financial goals. Indeed, there are a lot of mistakes people make managing their pay, and treating yourself to non-essential purchases as soon as the money comes in is one of the big ones. Not thinking about bills or loan repayments or big expenses such as rent is another common crucial misstep that many people make.
But the biggest one of all? Not having a budget. Without a budget or a plan, it’s almost impossible to figure out your priorities or to work out the best way to spend your money, and this immediately spells disaster.
Shift the way you approach your money and you’ll discover a different kind of rush on pay day. The rush of that comes from knowing you are actively in control of your money and using it the best and smartest way possible. This doesn’t mean you have to deprive yourself and save every cent, but rather look at the big picture and choose indulgences that fit with your budget and goals.
So how to do it? Here are the four steps you should take to make the most of your pay:
1. First, prioritise your personal savings
This is often called ‘paying yourself first’ and it’s a super smart way of building your savings. All you have to do is decide on a percentage of your income that you want to save each month. Maybe start with 5% and gradually increase it over time.
Then, before spending even a cent on bills or other expenses, put this money into a dedicated high interest savings account and don’t touch it unless it’s a genuine emergency such as losing your job. You should aim to have a pot of savings equal to three to six months of your monthly expenses, and this will provide you with security even if something unthinkable happens, like a global pandemic.
2. Next, pay the bills
They might be boring but they’re also essential, so it’s important to pay all your bills (including rent or mortgage, insurance and utilities) promptly so that your credit rating isn’t damaged. The smartest way to do this is to automate the payments so that they immediately come out right after pay day and you don’t have to think about it.
3. Now give yourself a weekly spending limit
This is where you allocate funds to cover all those general costs such as groceries, gym membership or essential purchases. Setting a limit really helps with avoiding the possibility of overspending, which is so easy to do.
You might also like to consider paying with cash because this makes you more aware of every dollar you spend, which can easily be forgotten when you’re tapping for purchases. If you prefer not to physically touch money, then it might be worth keeping a little list on your phone of all your weekly expenses so far, so you can keep track and make sure you stay on budget.
4. Finally, it’s time to have some fun with your money.
Yes it’s possible to still treat yourself to some indulgences, but only once you’ve taken care of everything else first. This way you know your future is safe and you can enjoy a few special purchases, such as a nice night out or a new pair of shoes, totally guilt free. If you find you have quite a lot of money left for fun at the end of the month, maybe consider increasing your monthly savings percentage to help boost that nest egg.
And if you discover your fun fund is a bit tight, then see if you can reduce any of the expenses in steps 2 and 3 to free up some money. Maybe cancel a tv subscription you hardly use or downgrade your phone or internet plan? Small tweaks can make a big difference.
There’s no doubt that shifting gears from being an impulsive spender on pay day to taking a more measured and strategic approach to your finances can have an incredible effect on your bottom line. With time, these small changes will compound into big results as you achieve all your financial goals.
The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circ*mstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.
