Payday, it’s everybody’s favorite day of the week. We finally get to see something for all the hard work we’ve put in. When the check finally clears in the bank, what’s your strategy to disperse your money? Do you have an automatic savings transfer that moves a pre-determined amount of money over to your savings account? Do you participate in your employer’s 401(k) plan and have the money automatically placed in your retirement account? How often do you make donations to charitable organizations? If you’re like most of us, these things probably don’t come easy. Your paycheck probably goes out almost as fast as it comes in. Before even thinking about setting up a budget to manage your spending, you’ll need to have the right mindset. I’d like to introduce you to what I call the 75% rule of managing your money.

Before spending a dime of your money out at restaurants, paying your cell phone bill or putting gas in your car, there are four important buckets to where your money should go. These four buckets should make up about 25% of your income, and are crucial to anyone that is trying to get or keep their finances in order. Here are the first four ‘transactions’ each month that you should make:

• Retirement: The old saying goes that you need to look out for number one. None of us want to work forever and we certainly can’t rely on the government or even family to take care of ourselves in our old age. If you’re not already, start saving 10-15% of your paycheck towards your retirement.
• General Savings: We all need an emergency fund and after that a savings fund for our more immediate future (5-10 years). Perhaps you’re looking to buy a house in the future or even a new (better be used!) car. A good 5-10% of your paycheck should be deposited into a savings account where it can earn interest and grow.
• Debt: Sure, debt’s no fun, but it got us to where we are today. Whether it’s the student loans that got us to college or the credit card loans that got us through that tough stuff, we’ve gotta pay them off. Always try your best to pay more than the minimum; none of us want to be in debt forever!
• Charitable Giving: Although you might not agree with me on this one, I believe it’s important for young professionals to give back to our communities, whether it’s to religious or other charitable organizations. We’ve been so blessed and it’s important to have an attitude of leaving our world a little bit better than we found it.

By consistently depositing the first 25% of your income into these 4 buckets, you’ll be setting yourself off on the right foot. Start looking at your income not as just one big amount that you can spend. Look at your income as 75%. If you make $50,000 per year, don’t think of it as being $50,000 to spend, think of it as being $37,500 (75%) to spend. Let your first 25% be as automatic as possible. By getting in this mind set of only having 75% of your income to work with, you’ll have the peace of mind to know that your future is being taken care of.

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Big Picture planning