Something about the fall season makes me want to cook. Specifically, I want to turn on the oven and bake cookies, breads, quiche, crisp, cobbler… you name it.
So in the spirit of fall, we are going to run “recipes” for the next few weeks on Women’s Money.
Recipe For Your Paycheck
The goal of this recipe is to create and shape your after-tax dough so that you know exactly what to do with your paycheck. In order to create this dough, you need to make your before-tax dough first.
As a result, it is a multiple-step process that can take several days.
Your Pre-Tax Dough
This includes:
- Taxes (Including FICA/Medicare/State/Federal)
- Health/Vision Insurance
- Life/Disability Insurance
- Health Savings Account
- Flexible Spending Account
- Retirement Savings
Start with your total paycheck. Determine how to complete your company’s tax forms using a withholding calculator, then complete the required tax forms.
Next, complete all necessary insurance forms to set up insurance through your company.
Determine your contributions to an HSA/FSA and retirement savings. If possible, contribute 7-10% of paycheck to retirement.
Complete required HR forms. Now, wait several days to several weeks for your paystub to be generated.
Acquire your paystub and review the various pre-tax contributions to ensure everything is correct.
Next, review the net amount deposited into your bank account.
Now you are left with your after-tax dough.
Shaping Your After-Tax Dough
Step 1: Open a separate savings account for an emergency fund.
Automatically contribute 10% of your after-tax dough to this account.
Step 2: Open a separate savings account for a vacation fund.
Automatically contribute 5% of your after-tax dough to this account.
Step 3: Open a separate savings account for miscellaneous surprise expenses.
Automatically contribute 3% of your after-tax dough to this account.
Step 4: Open additional savings account(s) for big-ticket items (college, house remodel project, car, etc.).
Automatically contribute 3-5% of your after-tax dough to these accounts.
Step 5: Use the remaining dough for necessary expenses.
Ensure the remaining dough is enough to cover necessary expenses.
If there is not enough dough, decrease contributions to emergency fund savings to 5% and decrease your vacation up to allowable limits, then to additional accounts, including your emergency fund, vacation, and big-ticket items.savings to meet necessary expense requirements.
Step 6: As the dough begins to rise in accounts, increase contributions first to pre-tax accounts
Final Step: After the dough has fully formed, enjoy the fruits of your labor, including vacations, big-ticket items, and the safety net of having an emergency fund!
Final Thoughts: What to Do With Your Paycheck
When it comes to what to do with your paycheck, it’s critical to make sure that your paycheck is working for you. This recipe will ensure you get the most out of your income and give every dollar a purpose.
