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Paycheck Management System

Jul 29, 2024

Notes on Paycheck Management Lecture

Introduction

  • Many high earners (six and seven figures) feel broke.
  • Common issue: Lack of a paycheck routine.
  • People spend without a plan and feel lost about expenses.

Key Principles

  • Defense vs. Offense with Money: Switch from reactive to proactive financial management.
  • Pay Yourself First: Automate savings before spending.

Step 1: Link Your Accounts

  • Importance of setting an automated money system.
  • Automatic Savings: Just like brushing teeth, saving should be automatic.
  • Example of how saving should work vs. trying to save:
    • Trying to Save: Random contributions lead to backtracking on savings goals.
    • Automated Savings: Set a clear goal and automate transfers to reach it.

Linking Process

  • Get a complete list of all accounts (URLs, logins, passwords).
  • Setup Direct Deposit: Ensure paycheck goes to checking account.

Automation Overview

  1. 401(k) Contributions: Link paycheck to automatically contribute.
  2. Connect Checking Account to:
    • Roth IRA or other savings accounts.
    • Credit card for automatic payments.
    • Regular bills that can’t be auto-deducted (like rent).
  3. Bill Payment Automation: Use the checking account's bill pay feature to avoid manual payments.

Step 2: Set Up Your Automatic Money Flow

  • Set payments to coincide with your payday to reduce disorganization.
  • Example flow if paid on the first of the month:
    • 1st: Paycheck deposited to checking account.
    • 2nd: Money transferred to 401(k).
    • 5th: Automatic transfers to savings and Roth IRA.
    • 7th: Pay bills and credit card in full (avoid minimum payments).

Pro Tips

  • Keep a Buffer: Leave a small amount in checking (e.g., $500) initially to avoid overdraft.
  • Contact Bank for Fees: Use a service script to get overdraft fees waived.

Managing Irregular Income

  • Adjust the system for those with variable paychecks.
  • Options for Two Paychecks a Month:
    1. Split savings and bills with each paycheck.
    2. Create a savings buffer to manage slow months.
  • Buffer Creation: Save three months of basic living expenses as a safety net.

Conclusion

  • Following these three steps enables automated financial management.
  • You should now be able to focus on living a rich life rather than stressing about money management.

Additional Resources

  • Suggests reading "I Will Teach You to Be Rich" for more insights on financial management.

Full transcript