8 Expert Tips on the Best Ways To Allocate Your Paycheck for Maximum Wealth

Businessperson Giving Cheque To Colleague.
AndreyPopov / iStock.com

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Around a quarter of American households live paycheck to paycheck, according to a 2024 study by Bank of America. That marks a worrying rise since 2019. 

But even those who aren’t technically in that camp still may not be saving nearly as much as they’d like. 

If you want to save more but don’t know how, what should you do with each paycheck to make sure more of it ends up growing your wealth and less slips through the cracks?

Start With a Four-Week Month

Many employees get paid biweekly — but they budget monthly. So they divide their annual income by 12 to come up with their monthly income. That may not be the best course of action, as they won’t actually collect that amount most months. 

In any given month, biweekly employees can count on only two paychecks. Occasionally, they’ll receive a third paycheck within a month. 

So they could base their budget on four weeks’ salary because that’s what will come in at a minimum. Throughout the year, they’ll collect extra unbudgeted pay, which can be put toward savings, investments, charity, irregular purchases like gifts, or specific goals like a down payment or a new car. 

Start Your Budget With Your Savings Rate

Most people budget their savings from their leftovers at the end of the budget. That’s backward. The first line item on a budget should be the target savings rate: the percentage of income they want to save. 

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As money expert Robert Kiyosaki frequently says, pay yourself first. Your savings creates your financial stability and your future wealth, and it must stay a top priority. 

The higher your savings rate, the faster you build wealth. The 50/30/20 rule is a popular guideline, which recommends at least a 20% savings rate.

That raises another question, however. What do you do with the savings? 

Take Full Advantage of Matching Contributions

If your employer offers to match 50% or 100% of your retirement contributions, that’s effectively free money. Take it. “Contribute to your 401(k) at least as much as the company matches,” said John Vandergriff, owner of Blue Ridge Wealth Planners.

You can think of this as earning an instant 50% or 100% return on your investment — and that’s before the tax benefits or investment compounding.

Pay Off High-Interest Debt

It’d be beneficial pay off high-interest debt, like credit card balances, personal loans and high-interest student loans. 

Dave Ramsey ranks this as a high priority in his Baby Steps program. And he’s not alone. “You can not build wealth when you have high-interest debts siphoning your income,” said Aaron Razon, a personal finance expert at Coupon Snake.

Save an Emergency Fund

Emergency funds don’t sound terribly exciting, but they can help prevent you from spiraling into debt when surprise expenses inevitably strike. 

“The biggest favor you will do for yourself is to make emergency savings a priority starting right now,” finance expert Suze Orman posted on Facebook. “Save. Save some more. And then keep saving.”

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As for how much you need saved, Ramsey recommends starting with a goal of $1,000. Once you hit that target, you can ease off the gas and start putting some of your money toward other priorities, like paying off debt. 

Even so, Ramsey recommends eventually reaching an emergency fund with three to six months’ worth of living expenses. 

Invest for Retirement and Other Wealth Goals

Investing is a key part of building wealth too.

“Once your high-interest debt is paid off and you’ve started an emergency fund, focus on investing as much as possible,” said Melanie Musson, finance expert at Clearsurance.com. “Wealthy people often earn more money through investments than they do through a paycheck. The only way to get yourself to that position is to invest.”

Automate Fixed Payments

Don’t rely on willpower or memory to split off those savings, investments and debt payments. Automate them. 

“Automation makes it so much easier to stand up and become financially empowered today,” Orman explained in an article. Automate your credit card paydown and your 401(k) contributions. Automate your transfers to your emergency fund and your investment or retirement accounts. 

Set these payments to go out the day after every payday. Then automate your rent or mortgage payment, your car payment, your insurance payments and every other regular recurring payment. 

Use a Separate Account for Discretionary Spending

Some financial experts, such as Martin Lewis, recommend opening many bank accounts for separate purposes, per Express. These can include accounts for gifts, accounts for savings, accounts for discretionary expenses and more.  

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But if you create only one additional bank account, consider creating one for discretionary spending. 

Automate a bank transfer for your discretionary portion of each paycheck. Then use this discretionary bank account to pay for all discretionary expenses, from meals out to new clothes to Netflix. 

This practice can help prevent you from overspending on discretionary items. Want more money for your discretionary budget? Consider picking up a side hustle. But don’t raid your savings to pay for your daily Starbucks latte habit.

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