In today’s episode, we’re tackling a fundamental financial topic: what to do with your paycheck every payday. Whether you’re just starting your career, in the midst of your financial journey, or nearing retirement, understanding where every dollar comes from and how to manage it is crucial for long-term financial wellness.

In this episode, we’ll cover:

• Knowing where your income comes from and track it using budgeting apps to ensure you’re meeting your financial goals.
• How to regularly check your pay stubs for accuracy, especially after changes in employment, benefits, or tax status.
• Prioritizing essential costs like housing, utilities, groceries, and transportation to ensure financial stability.
• Automate your savings with automated transfers to savings accounts, retirement funds, and emergency funds to ensure consistent contributions toward long-term financial health.
• Managing your discretionary spending on hobbies and entertainment, ensuring it fits within your overall budget.
• Using the Payactiv app¹ and card to track your income, automate saving², and reduce financial stress while working towards your financial goals.

Listen below or read the transcript that follows. 

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Eric Rosenberg:

Here’s a quick reminder that today’s episode is intended for education and entertainment purposes only and should not be considered financial or legal advice. Hello friends. Welcome back to The Good Cents by Payactiv podcast. As always, I am your host, Eric Rosenberg, and today I’m here to talk to you about one of the most important financial topics we can possibly touch on, and that is what to do with your paycheck every payday. No matter where you are in your financial journey, whether you’re a new worker just getting started in your career, you’re somewhere in that midway arc. That’s where I feel like I’m at these days or if you’re on the way towards retirement, knowing where every dollar comes from and what to do with every dollar is critical for your long-term financial wellness. So here’s a look at what’s most important to know about how your paycheck works and how to decide what to do with your paycheck every payday.

So the first thing you should do when you are getting your paycheck is know where your income comes from. Now we often talk about budgeting focused on expenses, but you should have an income budget too. I know I have an income budget. I know as a self-employed person with variable income, I have a certain minimum amount I need every month to cover my expenses, and then I have a higher goal I set to cover my expenses and then allow for savings and investments and other long-term financial goals. Now, if you have a part-time or hourly job where your income is variable, every payday, it’s important to do just what I do there. Set a goal and make sure you are on track to do it. If you’re not getting enough hours, say, “Hey manager, I need to get a few more hours in.” They might not care that it’s to reach your income budget goal, but letting them know you’re available to work more.

Maybe even want a little overtime to pad your income further. That’s okay. It’s good to speak up. And if you feel like your job isn’t enough to make ends meet, which is very common these days, it’s okay to shop around just as you’d shop around to get the best prices at the grocery store. It’s okay to look at other job opportunities where you might be able to level up your income and make more for every hour you spend working with your employer. So those are always things that are important to think of. You have more control over your income than you might realize, but to make sure you really get how that income is working for you, it’s important to track it. So using a budgeting app can help you see exactly how much money is showing up in your bank account every payday. You can track it by week, by month, by quarter, by year, whatever makes the most sense for your finances.

So make sure you are taking advantage of budgeting apps. There’s some free options out there we’ve talked about in past episodes. We also have on the Payactiv blog, which you should make sure to check out if you don’t regularly visit. There’s a lot of helpful information there. So once you are tracking your income, the next thing to do is to pull out your pay stub and really look at it. Now, a lot of us get our pay stubs digitally these days and it might come in your email or you might get a paper one from your employer every payday. There’s no right or wrong way to get a pay stub. What’s important is that you look at it and you might not have to look at it every payday, especially if you have a fixed salary. So you get paid the same amount every pay period, but if you don’t check on it at least every few months, at least every once in a while, you might have things going on there you don’t understand.

And it’s especially important when you are new to a job to make sure your first few pay stubs all look correct and no matter where you are, every year after the open enrollment season comes by or you make any changes to taxes or your benefits decisions, you want to make sure that all looks correct. So when you flip open that pay stub, just usually a little one page or even a half a page or a quarter page long, so it won’t take too long to read, but it might have a bunch of line items that you don’t totally understand. So we’ll walk through what you’ll see on your paycheck or on your pay stub. So at the top you should see how much you earned and that might be broken down into different income categories, particularly if you work with an hourly job where you might have overtime broken out or holiday pay broken out as separate line items.

So first, you’ll see how much you earned and that total is how much your company is paying you, even if that’s not the amount that lands in your bank account from payday. So what is the difference between what you earned and what you actually get? So the first line you should look for is your federal and state income taxes. Now, not all states have income taxes if you live in a state without them, good for you. I’m a little jealous, but we should all be seeing federal income taxes withdrawn unless you live in Puerto Rico. So that federal income tax line is a contribution you are making towards your annual federal income taxes. So when you do your taxes on tax day, and we have a recent episode, we talked about that just a couple months ago, it was tax season. So make sure to go back if you don’t know a whole lot about how your taxes work behind the scenes, but every payday your employer takes a little bit out of your paycheck.

And at the end of the year when taxes are due, if you’ve paid more from those deductions than you owe in income taxes, you’ll get a refund, which is great. And if you have had less withheld than you owe, then you’ll have to pay a little extra or maybe a lot extra to meet your income tax requirements. Think of your income tax deductions from your payroll as repaying your taxes for April when taxes are due or even a little earlier if you get them done early and if you have too much withdrawn from your paycheck, you’ll get that back. And that’s a nice way for a lot of people to automate a little bit of their savings. I know I like getting a tax refund back because then I can put it right into my savings accounts or my investments or towards other long-term goals. Next, you can look for your social security and Medicare deduction that might say FICA, which is an acronym for the federal programs related to your social security and Medicare insurance benefits.

Now those you don’t get anything back right away, but it’s a fixed percent of your paycheck that’s taken out. All Americans who are working legally in the US have to pay this, and if you’re self-employed, you actually have to pay double. And if you’re not self-employed, like most people, your employer is actually matching how much you put in. So for every $100 taken from your paycheck for social security and Medicare, your employer is also putting $100 in, and those are to help cover your social security and Medicare benefits in retirement. So think about that as prepaid insurance and a prepaid pension for yourself. So when you reach your golden years, you’ll get the amazing benefits that come with Medicare that makes health insurance and health coverage much more affordable. And social security, while it’s not usually enough to retire alone, it is enough to help improve your financial lifestyle once you retire or if you are no longer able to go to work.

Next, you might see different types of insurance deductions, most commonly health insurance premiums where you pay a portion and your employer also pays a portion for your health insurance. While it’s a lot of money, health insurance is very important, so that’s not something that we should be upset about seeing taken from our paychecks though I know it can feel a squeeze a little bit, but if you ever get sick or someone in your family gets sick, that’s a really important benefit. If you’re not participating and you’re able, you might also want to add a deduction for retirement accounts. That’ll be most commonly a 401k though depending on the type of employer you have. If it’s an education institution like a college, it’ll be called a 403B. If you work for a government, it’ll be called a 457 Plan, but they all work the same.

For every dollar taken out there, you actually see your taxes go down in the year of the withdrawal. So if you have $1,000 taken out for your retirement account this year and a regular 401k, it’s like you made $1,000 less on your income, so you pay lower taxes, which is great. So if you’re already participating in that, that’s awesome. If you’re not, see if you’re able to come up with maybe 1% of your income to get started saving for your retirement because that’s important for your long term financial health. Finally, you might see other deductions for other types of insurance, maybe life insurance or dental insurance or vision insurance. If you work through an employer where you’re part of a union, you might see your union dues automatically deducted. Once you take all of those deductions out and you might see a few others that are less common, but that is what adds up to the amount that’s taken from your paychecks.

You can figure out what’s left over to go to your bank account. So once that money hits your bank account, you have decisions on what you want to do with it. And we’ve talked a lot about budgeting, and that’s a common topic here because it’s so important, but when you see how your income is coming in, it can help you understand where you want your money to go. So how should you piece that budget together? First, we’ll most likely want to cover essential expenses. That’s housing, utilities, groceries, basic transportation needs so you can get to and from work, maybe get your kids to and from school. That could be a car, it could be public transit. If you live somewhere like New York City, you have a great subway network there, so you can get around really easily. If you live in Southern California, like me, you’re probably stuck owning a car.

So depending on where you are, your transportation budget might look different, but that’s an essential cost. You’ll need to do that otherwise you can’t get to work, you can’t earn your income. Housing, same thing, you need a home. We all understand why. Utilities not optional. You need to have the power turned on. You need to have natural gas possibly for your heat and you’re cooking if you have a gas stove. You’ll need a few different bills covered, often water, some renters might have water included in their rent, but if you’re a homeowner, you’ll have to pay your water bill separately. You might have to pay a trash bill. So those are all have-tos, so make sure if you’re able to, you can automate as many of those bills as possible so you can avoid late fees because late fees add up to a lot and they can add up fast. And we never want to miss payments. We don’t want to get those nasty letters or phone calls saying we’re late on any of our bills that we have to pay.

Next, start thinking about long-term goals. So that’s retirement. We’ve already talked about how you can automate some of that through payroll deductions with a 401k. You could also look at something like an IRA, which is another type of retirement account you control completely yourself. It’s independent of an employer and it gives you a lot more flexibility over how and when you contribute and how you invest. You might want to be saving for education. I know for my kids, I’m putting money into a 529. We put a little bit once a week automatically for each kid into an account to make sure that we have at least part of their college education paid for. And if you don’t already have one in a emergency fund is critical.

Financial emergencies can happen all the time. We’ve spoken about it before, how it could be anything from a broken down car to an appliance at home to an injury or illness you didn’t expect. One of the best ways if you’re not already saving for an emergency fund, and if you don’t have one, is again to automate. So you know you’re going to have a certain amount land in your bank account every payday. Using the Payactiv app, you can actually set up a certain portion of your paycheck to go into a set aside account called Goal Based Saving. And you can use your Payactiv card to automate that saving to ensure you have emergency funds set aside. And if you ever need to access those funds with just a few taps on your phone, those funds move to your checking account so you can cover the cost.

Again, automating is such a great way to make sure you’re saving for those long-term goals. While it might feel like a cash crunch early on, eventually you get used to it. And if the money is gone instantly from your checking account and goes right into a savings account or a retirement account, on payday, you won’t even miss the money. It’ll be like you’re paying your future self and your future self will definitely thank you for having put those funds away. And finally, it’s okay to allocate some funds for fun and optional expenses. Maybe you really like to go to the coffee shop. Some people would say that’s a waste of money. But if you value having a run to your local neighborhood coffee shop, whether it’s one of the big national brands or a locally owned independent one, I prefer the little locally owned one down the block.

That’s okay, as long as you’ve budgeted for it and you know can afford it. If you’ve already covered those long term goals and your financial needs, that’s okay. You could look at entertainment if you like going to the movies. I personally don’t spend a lot of money going to the movies. I don’t even go once a year. That’s an expense that I’ve decided isn’t worth it as much for me when I can watch a movie at home. But if you like to go to the movies once a month or every couple months, that’s totally okay to spend your money there as long as you’ve budgeted for it. If it’s in your budget and your paycheck is automated to work for you, that means you’ve given yourself financial permission to go to the movies. Or maybe you put a little money away every month for a concert fund or a vacation fund or whatever else you value financially. It could be any hobby, it could be anything.

Remember, it’s your money. You work hard for that money. And as we say, at Payactiv, you should be able to live the life you’ve earned and that is where this last part of the budget comes in. That’s where you are able to put money aside for those fun things that you value once you’ve covered your financial needs and paying yourself first for your financial future. So those are most important things we wanted to cover today. If you are not already a member of Payactiv, definitely download the Payactiv app. It’s in the Apple App Store and Google Play. I’m an Android guy, so I got it myself from the Google Play Store and signed up. I have my Payactiv card right here. So definitely take advantage of all Payactiv has to offer because if you have not spent a lot of time looking at your income and how your paycheck works, once you plug your income into Payactiv with direct deposit, you get a lot more information and even some helpful and valuable benefits to help you put your money to work for you to help you reach your financial goals.

We want you to have less financial stress and more financial confidence. That’s what financial wellness is all about. So make sure we’re going to recap it really quick. Number one, understand how much you are earning. Look at your total income, including all of those deductions. It’s best to track it with an app. There’s a lot of free ones, including Payactiv. Number two, spend some time looking over your pay stubs to know what is being deducted and why. And three, make sure the money that lands in your bank account is going to the right places for your financial goals. That’s all we have for this time. Thank you so much for sticking around to the end. Make sure you’re following us on social media as well.

You’ll be able to find Payactiv most of the places you hang out online and send us a note, send us a message letting us know how you decide where to allocate your paycheck, whether you want to send a portion of it to automatic savings and investments, or you’re trying to figure out how to get started with that. Or maybe you have to figure out how to pay off your credit cards so then you can save and invest more in the future. That’s all. Okay, everyone is at different places in their financial journey and we want to hear about it and be a resource to help you get on track to meeting your financial goals. So that’s all for this week. Make sure to hit subscribe if you’re not already, share it with a friend if you think they might find this useful. And until next time, keep on living the life you’ve earned.

¹ Standard data rates from your wireless service provider may apply.

² Goal-based saving is a set-aside account, and you will not receive interest or other earnings on the funds within the goal-based account.

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