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How to spend your paycheque

June 10, 2018

Putting that moolah on your pay slip to the best use.





My first ever official paycheque was for USD 400 – a result of spending 12 hours a week cleaning old vinyl records at the back of the Music Library


Because I was 18 and beyond dumb, I blew all of it on a ticket to New York City, and came back to San Francisco broke as ever, forced to starve until the next scholarship installment or the next paycheque came, whichever was earlier.


It took me close to two years to figure out a system to not throw all my hard-earned money down the toilet …





Whether you’re about to receive your first ever paycheque (which hopefully is a lot more than the USD400 of mine) or your ten thousandth paycheque, everything from here on will still apply to you. 



What system?


By system, I basically mean a series of guidelines and steps to take on a consistent basis each time a paycheque comes your way.


The aim is for this to eventually become a habit, such that the system works even without you having to really think about it. You know, like brushing your teeth. 


The system can be set up in 4 steps.



Step 1: Decide on your priorities


Instead of letting life and sudden temptations dictate how you use your paycheque, you should beat them to the chase and decide for yourself first. 


On any given day, there are a number of things we all need to pay for: bills, food, clothes, games, watching movies at the cinema, etc. Some things you cannot avoid spending money on (like rent), while some things you actually enjoy spending money on (like books) (don’t judge). Some things you always remember to pay (like the internet bill because you cannot go on with life if the service is withheld), and some things you never think about even though they are actually important (like insurance and investments). 


Out of this universe of things that require your money, take the time to figure out which of them deserves a permanent spot on your beneficiary list.


Do you want to dedicate a portion of your money to eating out because you’re a social butterfly and a foodie? Or do you prefer to dedicate a bigger portion to expanding your figurine collection? Whatever rocks your boat.


My list of priorities looks something like this:




Yours will differ from the above, naturally – you may have a category dedicated to Fitness (to pay for gym memberships or gym equipment or a personal trainer), or to Entertainment (for the Netflix subscription or weekly date nights or bowling outings). 


At the minimum, I recommend at least 4 categories:


1. Living Costs

2. Investments (for the long-term)

3. Savings (for the short-term)

4. Miscellaneous



Step 2: Decide on your percentage


Once you have your list from Step One, the next step is to assign each category a portion of your paycheque. Again, percentages will differ based on your actual earnings, your lifestyle and the amount of money it takes to maintain that quality of life. 


Using myself as an example again, below is how I’ve portioned out my paycheque:



Living costs: My living costs typically take up 20% of my earnings. This is the amount of money I need to pay all my bills, keep a roof over my head and eat out with friends every now and then. Some of you will have a percentage much higher than that, or much lower than that – it doesn’t matter, as long as you yourself are comfortable with the number. If you think 15% or 30% is a decent portion to be spending on survival, then good for you. (However, I would worry if the percentage is way above 50% or anywhere close to 100%, which means you’re spending every cent that comes your way. You may want to rethink either your job or your lifestyle)


Investments: A third of my paycheque is dedicated to investments, because I take it very seriously. And so should you. You don’t need to put as high a percentage as I do, but a portion of your money should definitely go towards long-term investment vehicles (read my quick intro on Investments; I’ll write more about it later too). If you can afford to, you can also put a higher percentage than mine. 


Savings: Because I knew I planned on getting myself a house and a car at some point in the near future, I dedicated a whole category and 10% of my paycheque for them. I know a lot of people simply take on a loan for this purpose, but I highly encourage you to put in the effort to save for them in advance. Even if you can’t possibly save enough in time, you will at least be able to reduce the amount you need to borrow. The less debt the better (more on this later in the series too!).


Travel:  This is the next biggest category, after Investments & Living Costs, because I also take travel very, very seriously. We all have that one thing we obsess over and are more than happy to throw our money at (be it branded sneakers or photography equipment or the latest Apple gadgets), and mine just happens to be travel. You can replace this category with whatever makes the sun shine brighter in your world.


Charity: As a reminder that my money isn’t wholly mine and is, in fact, a gif