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In this article, I want to walk you through step by step, exactly where I think your money should be going when you get paid. I think that a lot of people get confused whenever they get paid, on how to allocate their money. if you just follow along with this article, you’re going to be in a much better financial situation in the future, and you will be saving money as well.

For me, before I started allocating my money properly, I was having a hard time doing the things I wanted to do. Like travel, buy Christmas gifts for others, and even eat out at cool restaurants whenever I wanted to.

I remember a specific Christmas a few years back when I didn’t have any money to buy my friends and family Christmas gifts. I don’t know if you’ve been there, but if you’ve ever received a gift and been unable to reciprocate, it feels kind of crappy.

The funny thing is, even though I was making around a sustainable amount of money in my salary at that time, I just wasn’t managing my money properly. I personally hate it when money is a source of stress.

Now I know that if I can be safe and money isn’t a continual source of stress, I’m going to be operating at a much higher level than I used to be. Without the stress of money, I can really focus on the things that I can control, and actually focus on making even more income. That’s my personal belief. With proper money management we’re going to be less stressed about money, and if you believe in that same sort of belief then keep reading this article.

6 Places Where Your Money Needs To Go | Saving Money

In this article, I’m going to share with you practical steps, and there’s probably at least one of these steps you haven’t heard of, that hasn’t been covered anywhere else. Make sure to read this article all the way to the end, to hear that step.

With that being said, let’s get talking.

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Step one: Contributing To A Retirement Account

Before we actually get into step one, we need to address the fact that most people don’t even get to step one. After they receive their paycheck, it goes into their checking account, and after it gets in their checking account, then they just start to spend money reactively and not proactively.

As a result, sometimes what we’ll find is that we’re actually living paycheck to paycheck when it really doesn’t need to be that way. This is exactly what I used to do and there’s no shame in being here, but we definitely need to recognize that we are at this point right now, and really get on to step one.

So step one is before our money even hits our checking account from our paycheck, we want to make sure that we’ve portioned off a percentage of our paycheck straight into a retirement account. In the United States, you can get a 401k-sponsored plan from your employer, and many other countries have a similar type of retirement plan as well.

Every pay period, you can set aside a small percentage of your paycheck to automatically be deposited into that retirement account. A good goal to set aside every paycheck is about 10% of your paycheck going straight into a retirement account. According to the bureau of labor statistics, in the United States, the average salary is actually $48,000 a year. If you do make that average salary and you set aside 10% every paycheck, that means every year you’re gonna be saving between $4,000 and $5,000 a year for retirement.

That might not sound like a lot, but considering the fact that if you started doing this at age 25, and you put aside $5,000 for retirement all the way until you reach the age of 65 with a 7% compounded annual return in the S&P 500. You’ll actually have an ending balance of over a million dollars by the time you’re 65 years old.

Boom! just right there.

If you set aside 10% of every paycheck and you earn the average salary in the United States from the ages of 25 to 65, you’re virtually guaranteeing that you’re gonna be a millionaire by the time you retire.

The other advantage here is that, by setting aside a portion of your paycheck before it even hits your checking account, you’re not tempted to spend it. This is actually more important, you’ll also get tax advantages depending on the plan that you’re on and your employer.

Alright, that’s step one, but what is step two?

Step Two: Money Hits Your Checking Account

Let’s say you actually do step one, and you portion off a percentage of your paycheck into your retirement account. Well, step two is that the money hit your checking account. This is where the buck stops for most people, but the buck doesn’t stop for you here, because you’re reading this article, we will know exactly where your money should go after it hits your checking account.

There are a lot of options for where your money can go after it hits your checking account, but in my opinion, the highest priority is something that I like to call

Step Three: Overhead Fund

I can almost guarantee that you have not heard of the overhead fund. Essentially, the overhead fund is a fund for all your necessary expenses in life. That can mean things like rent, utilities, groceries, insurance, etc.

This is not an emergency fund which I will talk about shortly, this is actually just a fund that you’re going to accumulate to cover your necessities in life. Ideally, you know your monthly recurring expenses down to the number, and you’re saving money into your overhead fund from your paycheck to get to a certain savings level that you’re comfortable with.

Personally, I like to save between three to six months of my necessities in a separate account from my emergency fund. The reason is that, if I encounter some sort of situation like I lose my job, I can dip into my overhead fund and not my emergency fund. Ideally, my emergency fund is only for life-threatening emergencies or things that are going to displace me for a period of time.

The point of this fund is that since we need food on the table and electricity running all the time, it’s nice to have a separate fund just for this, that’s separate from your spending money. For me, I really like compartmentalizing all my accounts, and this just really gives me peace of mind knowing that I have three to six months of my living expenses covered.

After those needs are met, at the same time you can also be saving for

Step Four: Emergency Fund

Basically, an emergency fund is an account that you do not touch unless for emergencies. Just because I personally have an overhead fund, I save a little bit less money in my emergency fund. However, my emergency fund still has a decent amount of money in it, and that’s for catastrophic emergencies.

A lot of traditional personal financial people will advise you to keep between three and six months of living expenses in your emergency fund, but that’s actually what my overhead fund is for, and my emergency fund is strictly for crazy crazy emergencies. Either way, the point of having an overhead fund plus an emergency fund, is to ensure that you have the ultimate peace of mind while operating in your day-to-day life.

Concerning where to keep your own emergency fund, I like to just keep my money liquid in a high yield savings account either from Ally bank which is an online bank, or Marcus by Goldman Sachs. That way you’re still accumulating interest on your money which will help you against inflation. I would not recommend keeping your emergency fund in anything that involves risk, such as individual stocks or brokerage accounts. The reason is that, if you lose that money, that’s not going to be very good.

Personally, I think having an emergency fund is going to give you a lot of peace of mind. If you ever do dip into your emergency fund, one of your first priorities, after you dip into it, is to refill that bad boy back to its normal level.

This is just my personal method, I like to have an overhead fund and an emergency fund. But if you want to combine both into one fund, that’s totally up to you as well.

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Alright then,

Step Five: Pay Off Any Debt

Now that we have our necessities and basics covered, the next thing to do is to pay off any debt that we have. More specifically if you have any high-interest rate debt. This is the step in which you want to take care of that high-interest rate debt.

High-interest rate debt would be anything over 10% of an interest rate. If you have some debt that’s around five to six percent, you can make an argument that it’s not super high. Although I would say it’s probably hard to get a return of five or six percent in the market, or in investments reliably. I would even start to pay off five or six percent and higher interest rate debt.

Personally, I love having as little debt as possible.

When it comes to paying off debt, you have a few methods to pay it off. The first is called the snowball method, this is a method where you pay off the smallest balances first. The other method is the avalanche method, where you start to tackle the debt with the highest interest rate first.

Depending on how much debt you have and what your income is, you could be at step five for quite a while. But for me, it’s incredibly important to pay off your debt before you start investing because if you don’t pay off your debt while you’re investing, it could cause some stress and problems.

Some people argue that if you have really low-interest-rate debt such as student loan debt just maybe at three percent, you could actually start investing in investments. That’s totally up to you, that’s going t be your judgment call, and that’s going to depend on how much risk you’re willing to take.

In any case, step five is about paying off your debt, and I want to at least address where that should go in the priority of steps.

Step Six: Investments

Step six is all about the investment portions of your paycheck. This is where it gets pretty fun, the money that goes into this account can actually flow into a lot of other assets. Within this account, you’re hopefully breaking up your money into a well-diversified portfolio of many different assets that you can hold.

These types of investments can include, for example, portioning off some cash for a real estate fund, a “fun fund” for your vacation or your dream car, investing in a Roth IRA, or a Traditional IRA. Perhaps you want to invest in some stocks, Cryptocurrencies could be another investment, or precious metals, and collectibles.

With your investment account, you’re looking for investments that are appreciating and also paying you in the short term. Hopefully, your investments grow, they start to compound, and you can start to reinvest those investments in your investment account, and have your money work for you. I have plenty of articles on my blog on investing, click here to check them out.


According to Naval Ravikant, which is the CEO of Angellist, “having wealth is basically having assets that are generating you cash while you sleep”. And to do that, we can’t do that unless we have proper money management. I hope that with this article, you now know the possibilities of where your money can go every paycheck.

My goal is to get you guys to financial literacy and build the financial foundation as fast as possible.

I hope that you enjoyed this article, and if you got any value out of this article, make sure to share it with others. Also if you’d like to see more articles from me, just click here to subscribe to my mail list.

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