No matter when it falls, the best day of any week is payday. When that direct deposit notification comes in, you feel satisfied, relieved, and, of course, hungry for a little more. You’ve already got your bills on autopay, and you figure you’ll save what you can of the rest. That’s showing smarts with your paycheck, right?
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Well, it’s a solid start. But it’s not enough. There are steps you can take after you get paid to bolster your savings, pay down debt, and prepare for both significant and inevitable expenses. You work hard for your paycheck, and with a little planning, your paycheck can start working harder for you.
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Putting Money Into a High-Yield Savings Account
If you’re funneling part of your paycheck into a traditional savings account, you’re missing out on an opportunity to earn meaningful interest. A high-yield savings account typically offers interest rates well above the national average, allowing your money to grow faster over time.
Automatically sending a portion of each paycheck to a high-yield savings account is a great way to save up for short-term goals, like purchasing a new car or building a down payment on a home.
It’s also an ideal account for setting up an emergency fund. Keeping money in a high-yield savings account can help you plan for irregular yet unavoidable expenses — some of which, like vacations, are more fun than others, like car repairs.
Starting To Invest
The best time to invest was yesterday. The next best time is right now. If you’re not allocating a portion of your paycheck — even a small amount each month — toward investments, you’re missing out on a powerful way to build long-term wealth.
Yes, entering the market can feel a little scary — especially these days — but the longer you’re in the market, the better your chances of riding out short-term swings and benefiting from long-term gains.
Consider working with a financial advisor or using a reputable robo-advisor to help you create an investment strategy that aligns with your goals, risk tolerance and values.
Getting an Employer Match on Your 401(k)
For many people, a 401(k) is the foundation of a secure retirement. And one of the most effective ways to grow that foundation is to contribute at least enough to your 401(k) to earn the maximum match from your employer.
An employer match is exactly what it sounds like: When you contribute to your retirement plan, your employer contributes too — usually up to a certain percentage of your salary. That money grows tax-deferred while in the plan and is only taxed when you withdraw it in retirement.
Don’t think this adds up? Take it straight from the IRS website, which explains the perks of employer matching programs directly, using the hypothetical example of a 50% employer match:
“You contribute $1,200 from your $30,000 annual salary to your company’s 401(k) plan. Your employer’s 50% match on your contributions up to 5% of your salary means an additional $600 (50% x $1,200) would be added to your retirement account for the year.”
You don’t want to leave $600 of retirement money on the table, clearly. Even if your employer doesn’t offer a 50% match, any contribution is better than none, and it can make a big difference over time.
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Bottom Line
Payday is a great day — and if you seize it by making smart money moves with your paycheck, you’ll be better prepared to save, invest, and retire with confidence.
Source:
IRS.gov, “Matching contributions help you save more for retirement“
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This article originally appeared on GOBankingRates.com: You’re Wasting Your Paycheck If You’re Not Doing These 3 Things
