A Talker Research survey done for EarnIn found that the typical American spends 64% of each paycheck on basic needs and 16% on their wants. Unfortunately, that doesn’t leave much cash to save for emergencies or invest and makes it hard to escape the paycheck-to-paycheck cycle.
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According to personal finance expert Jaspreet Singh, you can optimize how you use your paycheck so you grow wealth more quickly and not only have your regular payday to look forward to. In a YouTube video, he outlined top paycheck hacks you can start using today.
Make Biweekly Mortgage Payments
While you’re probably used to making one monthly mortgage payment, you won’t save on interest or get free of your mortgage debt faster that way.
Singh said it’s wiser to use your income to make half your usual mortgage payment every two weeks. So, if your payment is currently $2,500, you’d pay $1,250 every two weeks, adding up to 26 half payments or 13 full payments per year.
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“You’re slowly chipping away at the principal balance even faster, which can save you six figures over the course of your mortgage without too much work,” Singh explained.
Automate Your Money
Keeping all your money in one account keeps things simple, but you’ll likely find it easier to overspend and harder to successfully save and invest.
That’s why Singh said you need separate spending, saving and investment accounts where parts of each paycheck will automatically go. This practice lets you avoid relying solely on your willpower or memory, which can fail you.
Set Up a Money System
When automating your money, you’ll also need to decide how much of your paycheck to use for each purpose. Singh recommended the simple 75-15-10 plan, where you use no more than 75% of your pay for expenses, at least 15% for investments and at least 10% for savings.
Since Singh’s suggested spending limit is a maximum, it’s smart to lower expenses so you can put more money toward investing. A compound interest calculator by Investor.gov shows that even contributing an extra $300 each month at a modest 6% return would add up to over $132,000 in 20 years.
Spend on Education
“What every investor and every wealthy person wants to do is they want to invest in their mind because your mind can be the best investment that you can make,” Singh said.
He advised using part of each paycheck for one education-related purchase. While you could pay for a course, seminar or mentor, Singh explained that you can learn the essentials of business and finance for less money through books.
He recommended getting five books in each of these areas: leadership, business, investing or money management, personal development and sales. He also suggested biographies as a bonus.
Reinvest Your Raises
Many people think that a bigger paycheck means they’ll become richer, but a Bank of America Institute survey found that even around 20% of those earning $150,000 or more per year were in the paycheck-to-paycheck trap. Lifestyle inflation is a common problem, and your raise might tempt you to add new expenses or upgrade things like your car or home.
Singh suggested investing your income boost instead of increasing your spending. That will set you up for a bigger account balance at retirement from your contributions, investment earnings and potential employer matches. Plus, it should reduce your financial stress.
Wisely Use Credit Cards
Unlike Dave Ramsey, Singh thinks that credit cards can be a helpful tool if you’re not already in debt with them, you don’t tend to overspend, and you don’t plan to carry a balance with interest.
“If you use a credit card smartly just to make the purchases you would normally make, well, now those same credit cards could add some cash back or free perks for really doing nothing except using a credit card instead of cash,” he explained.
To accelerate building wealth, you could cash out your rewards and put the money toward investments. You could also redeem rewards for statement credits that help cover your balance.
Know Your Goal
Singh recommended having specific investing, saving and spending goals beyond the paycheck allocations he brought up earlier. The targets will depend on your situation and needs.
First, he said you should save up three months to one year of expenses for your emergency savings. The lower end can make more sense if you’re single and young, while the high end is smart if you’re someone with dependents and many expenses.
When setting your investing goal, you could use a retirement calculator to see what you’d need to cover your expenses alongside other available income sources. Singh said you’ll also need to decide whether to focus on making money through cash flow (his preference) or appreciation, as well as whether passive or active investing is right for you.
He said your spending goal will closely connect with your investing goal since you’ll need enough money to live your desired lifestyle. If you’re happy living simply on $2,500 per month, your target investment amount will look different than if you want to travel in luxury.
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This article originally appeared on GOBankingRates.com: 7 Paycheck Hacks To Build Wealth Faster, According to Jaspreet Singh
