if you find yourself always wondering where all your money went at the end of every month it's because you don't have a plan for when payday hits like the water in this jar money is a finite resource so you have to be intentional with it otherwise you end up just living your life working to pay the bills and making other people rich instead of actually ever getting ahead yourself and so in this video I'm going to share with you the eight places your money needs to go every payday and in what order I started doing
this back when I was in a lot of debt and making very little money but sticking with this is exactly what helped me get out of debt buy a dream home and have over a million dollar invested by age 32 so I'm going to share with you how you can make the most of the money you have right now regardless of your income level today all right the first place to put your money is pretty obvious you need money to live so your paycheck first needs to go to things like groceries housing Transportation you also
probably have bills like minimum debt payments car payments utilities Insurance a lot of people get into trouble here because it is so easy to justify needs that are actually wants yes you need a place to live but you don't need the nicest apartment you also need to get from point A to point B but do you really need a BMW to do that when a gently used Honda Civic would also do the job it's a slippery slope but the last thing you want is to have all of your money going towards your needs and have
nothing else left to get ahead A good rule of thumb is to keep all of your needs keep all of that under 50% of your take-home pay now I know with the High Cost of Living these days it is actually quite hard to keep your needs under 50% so just do your best but if your needs are eating up 80 90 even 100% of your money then how do you expect to ever get ahead so this is where you might want to consider making some changes now the changes might be annoying you might have to
sell your brand new car pay off the car loan and maybe get a cheaper car you might have to get a roommate these are changes people usually don't want to make but it's also going to make a really big difference so now you've taken care of the first place your money needs to go which is your needs great but what you do next is where most people go wrong you go out with your friends you go on a nice little vacation take yourself out to dinner and you're thinking if there's any money left at the
end of the month you will save some money problem is when you do that there's never much money to save if at all because of something called Parkinson's law ever notice how if you have 5 months to do something you're going to take 5 months to do it but if you have 5 hours to do that same thing you're going to get it done in 5 hours work expands to fill all the time available that's Parkinson's law and it's the same thing with money if you have $10,000 in your bank account you're going to think
you can spend that and it'll be gone but if you only had $1,000 in your bank account that's what you're going to spend and so the trick here is to hack your own psychology instead of putting your money towards needs and then wants and then your financial goals if there's anything left you have to do it the reverse put your money towards your needs and then towards your financial goals and then with whatever's left you spend all of that towards wants and this works because after you've put the money away towards your financial goals into
savings accounts and other places you're not going to have that money in your checking account therefore you're not going to spend it cuz it's not there but if it's sitting there you are going to spend it so basically you have to get in the habit of paying yourself first it is counterintuitive but it really works and that brings us to the second place to put your money after your needs which is not your wants it is actually the first of your financial goals we can't avoid the fact that life is full of surprises medical bills
car repairs emergencies Etc and if you're not prepared for these Financial curveballs you'll find yourself scrambling for money and even worse getting into credit card debt to pay for it that's why you also want to have an emergency fund an emergency fund is a cash cushion set aside from your everyday checking account that is in a high yield savings account so it's a savings account that pays good interest and this emergency fund is your safety net if anything unexpected unplanned in your regular everyday spending happens you take the money right out of this emergency fund
no problem as for how much you should save in here ideally you plan to have 3 to 6 months of your bare minimum necessity living expenses saved up this emergency fund should cover you for anything that life could possibly throw at you including a job layoff and you will feel so amazing and secure once you have this check out the links Below in the description for recommendations for my favorite high yield savings accounts and now for the third place to put your money it's great to have an emergency fund but if you have credit card
debt it doesn't really make sense to be sitting on a large amount of cash making a little bit of interest when you actually are paying 25 to 30% APR on credit card debt which is why the third place to put your money is precisely to pay off credit card debt oops and so if you have credit card debt at the moment instead of saving up a 3 to 6 month full emergency fund studies show that the average emergency expense that American experience is about $1,400 so start with a $2,000 starter emergency fund and then once
you're completely free of credit card debt you can go back and build a bigger full-size emergency fund you guys paying off credit card debt should be a top priority just to put things in perspective if you were to carry a $10,000 credit card balance at a 28% APR you would actually be paying over $7 a day in credit card interest that's $7 a day just for breathing when you should really be thinking of ways to earn earn $7 a day let alone paying someone $7 a day so never sit on credit card debt for longer
than you need to pay it off ASAP now in terms of how to pay off credit card debt there are two methods one is the debt Avalanche method this is where you rank your different credit cards by interest rate and you pay off the one with the highest interest rate first so any extra money you have you put all of that towards that one high interest credit card while doing minimum payments on the rest and then once that credit card is paid off then you move on to the next one and the next one and
the next you can also do the debt snowball method which is where you actually pay off the credit card with the smallest balance first and then once that's fully paid off you move on to the second smallest balance and so on and so forth both methods work really well and if you really focus you can get out of credit card debt very quickly something I want to point out is that these eight Places work like a waterfall so come next payday if these cups are already full you don't have to put anything in them and
you can just move on to the next place your money needs to go so if you don't yet have an emergency fund and you're still paying off your credit card debt you might find find that most of your money is going towards these two things but keep in mind it's not going to be forever once you fill up your emergency fund once you've paid off your credit card debt you're going to have a bunch more cash flow to move on to the next thing and now that brings me to the fourth place your money needs
to go everything we've covered so far is pretty basic stuff but now we really need to get some money working for you if you never figure out how to get your money working for you you're going to have to end up working for money for the rest of your life and so the fourth place to put your money is into retirement accounts and really you should have started in investing for retirement like yesterday check this out if you had started investing at the age of 20 you wouldd have become a millionaire by the age of
50 by just investing $500 of your own money that's just $180,000 in total contributions over the course of those 30 years and $820,000 in investment gains all that is due to the power of compound interest which is the concept of you making money on your money so because your Investments grow and then the growth happens on top of that growth and then the growth happens on top of all that growth your gains actually under up being exponential especially towards the end on the other hand if you waited to start investing until the age of 40
you could still become a millionaire by the age of 50 but it would take $5,000 a month in order to get there that's $600,000 in total contributions out of your own pocket over 10 years and $400,000 in growth from your Investments so that means because you didn't have time on your side and you didn't have the power of compounding exponential returns you had to do a lot more of the heavy lifting the good news is it's never too late to start and the there's actually a lot of tax advantaged ways to help you catch up
quickly for retirement one way to start investing for retirement and filling up this fourth cup quickly is something called 401K match not everybody has this but if your job offers a 401k match that means that for every percentage of your paycheck that you put into your 401k your employer will match that for you sometimes they'll match you dollar for dollar sometimes it'll be 50 cents for every dollar you put in but either way it is free money a lot of people think you need a lot of money to get started investing but if you have
401K match you don't need any money to get started investing you just need to set up 401K match with your employer and your 401k will fill up very quickly with free money from your job another amazing tax advantage way to start investing for retirement is to open a Roth IRA a Roth IRA is an investment account that allows you to put after tax money into it but all of the investment growth is never ever going to be taxed and then when you withdraw the money later down the road that money is also not going to
be taxed if you didn't invest in a Roth IR you would have to pay capital gains tax on all of the investment growth you'd have to pay taxes on the dividends anything that you earn from your Investments and a Roth IR is nice because even if your investment goes from $50 to $50 million you don't have to pay taxes on any of that growth whereas without a Roth IRA you would be owing millions and millions of dollars in taxes every year as of 2024 the government allows you to put up to $7,000 into your Roth
IRA every single year so you should really try to Max that out every year if you can another great account for retirement investing is something called the HSA or health savings account right now you're allowed to put up to $4,150 into it every year the way this account works is anything that you put into this account is completely taxfree so you're putting pre-tax money in there and then all the Investments are allowed to grow in the HSA tax-free and then when you withdraw the money that's also taxfree so the HSA is a Triple Tax loophole
the only catch here is that you have to withdraw for health related expens only you can even use this for contact lenses for massages for doctor's appointments for supplements anything that is health related is an HSA qualified expense so this is a really nice way to invest for retirement in a tax advantaged way and have money to use for stuff that you need and another option to help you fill up this fourth bucket is to look at 401ks or if you're self-employed solo 401k or SEP IRA these are retirement accounts that allow you to contribute
pre-tax money and have your Investments grow completely tax-free and the the catch is you do have to pay taxes on the back end when you withdraw the money however it's still really worth doing because you can put away so much money pre-tax which reduces your current year taxable income and that will save you a ton of money in taxes and if you need some guidance on where to open these accounts check out this free ultimate guide that I've put together for you and you can grab the link below in the description and now on to
the fifth place your money needs to go every payday so we've talked about investing we've talked about retirement compounding interest and all that stuff is great but the reality is in order to have more to invest you need to make more money in the first place which is why the fifth place to put your money is investing in yourself you could be putting your money in all the right places but at some point you just need to be working with larger quantities of money putting a couple hundred dollars away here and there is certainly better
than nothing but it's not going to change your life as if you put thousands of dollars away every month that's why you have to invest in yourself and make yourself more valuable so that you can eventually charge more and and make more so invest in yourself to learn High income skills spend the money to get training mentorship courses books don't be one of those cheap people who never wants to pay for anything and wants to get everything for free really good training coaching advice and help will cost money I've invested tens of thousands of dollars
in training whether it's for business money training mindset training therapy coaching and let me tell you the ROI on things like that is higher than any stock or hot cryptocoin that you could ever buy when you grow your income grows so don't forget that when one of the places your money needs to go is in investing in yourself all right now just by doing these five things you're already ahead of 90% of people but why stop there right there is nothing nothing better than the feeling of being completely and completely debt-free meaning no monthly payments
to anyone all of your monthly cash flow is completely All For You the moment I finished paying off my student loans it was insane how much faster I could reach my other goals because all this cash flow was suddenly freed up which is why the sixth place your money needs to to go on payday is towards paying off all of your other extra debt but I'm really referring to car loans student loans medical loans personal loans and anything that's not your mortgage it certainly wouldn't hurt to pay off your mortgage but if your interest rate
on your mortgage is really really low we're talking like below 3 and 1 half% then I would say never pay that off because that's practically free money and your money is going to make a higher return either being invested in the stock market or even just doing other things every extra bit that you add towards your monthly payments will greatly accelerate your payoff date so for example on a $20,000 student loan at 5% interest just by paying $100 more every month you're going to pay that loan off four years faster and now if you've made
it this far you are doing amazing you're crushing it and this cup is actually optional but if you can and you have extra money then this last cup is for non-retirement financial goals this could be stuff like buying a house saving up the down payment maybe saving up money to send your kid to college or perhaps even to invest even more aggressively in order to retire early because all the investing that we talked about so far was retirement investing which we all have to do because we're all going to need money in our old age
but the problem with retirement investing is that all of those accounts are very restrictive you can't really access the money in retirement accounts until you turn 59 and a half unless you want to face a lot of taxes and penalties but what about present you what if present you needs a chunk of money for something big that is non-retirement so that's what this seventh cup is for so say if you want to save for a down payment on a house you could put that money into another high yield savings account separate from your emergency fund
and gradually save up money there if you wanted to save for a college fund you could consider opening up an account called a 529 account which is a tax advantage account that is specifically for education purposes and of course if you just want to invest more for early retirement because you're maxing out all of your retirement accounts and you still have more money to play with then consider opening a taxable brokerage account which is a regular investment account that works just like a retirement account but doesn't have any of the tax advantages and has no
restrictions on when you can access the money again check out this really handy guide that I created for guidance on where are the best places to open all these types of accounts okay and now for the best part treating yourself to a nice dinner going out and having fun with your friends and just enjoying the fruits of your labor because you've earned it because you've taken care of all of the important stuff first and so the last place to put your money is your wants this is the last place your money should go because when
you spend your money on wants before taking care of all the the important stuff you actually shoot yourself in the foot because you can't even really enjoy those purchases it doesn't feel good to be out with your friends and spending money when you're low-key stressed about your finances and feeling guilty cuz you know that there's other things that that money could be going towards that's why it's best to do things in this order take care of your needs all of your financial goals or as many of them as you can and then leave some for
once and of course that part is important cuz we do need to enjoy ourselves life should should be fun as well money isn't all about investing it's also meant to be enjoyed but you just got to do things in the right order if you get in the habit of managing your money like this you'll find that it'll really help improve your relationship with money and you'll find that you get ahead financially very quickly so now that I've shown you the eight places your money needs to go every single payday let's wrap it up with a
concrete example using a $5,000 paycheck so remember we allocate your money like a waterfall so if your take-home pay is $5,000 then half of that $5,000 goes to your needs and then you have $2,500 left but because this works like a waterfall let's say you already have your emergency fund funded you don't have any credit card debt so you can skip number two and three and go straight to retirement accounts money into your Roth IRA and 401K match and your HSA and all of that combined you're putting $1,000 into your retirement account total every single
month that leaves you with $1,500 to work with and then with the rest of the money you're putting $500 a month into the investing in yourself bucket and then $200 a month towards extra payments on your debt and then for number seven you're not putting anything towards non-retirement financial goals at the moment and then that leaves you with $800 to spend on anything you want and to treat yourself so hopefully this gave you a really good idea on how to be super intentional on every payday and how to make the most of the money that
you make whether you're making a little bit or a lot if you got any good insights from this video I would love to hear from you in the comments below thank you for watching and I will see you in the next video bye [Music]
