Here at Hired dollar, we believe that every dollar you earn should be assigned a job or a purpose. You should have a dollar assigned to covering your basic needs (food, shelter, bills, etc), a dollar for retirement, a dollar for emergency funds, a dollar for investing, a dollar for fun, and a charitable dollar.
We do advocate for “saving before spending” or in other words, paying yourself first. Ideally, a percentage of your paycheck should be taken out before taxes and invested into 401k/403B/IRA or other pre-tax retirement accounts. Doing this will reduce your taxes while paying yourself first.
After receiving your paycheck, a percentage of your paycheck should be directed to an emergency fund. We advocate for an emergency fund (EF) large enough to cover at least 6 months of expenses; however, save what makes you comfortable. I personally have an EF that can cover 24 months. This is controversial since some people argue for having less cash and investing more. But this is personal finance and our emotion dictates what we do most of the times.
After the EF is sufficient, you should take care of debt. We advocate for paying all the debts except your mortgage. If you can afford to pay off the mortgage, you can do so as long as you’re also saving for retirement. While paying of the mortgage has its psychological advantages, it does carry an opportunity cost. You should explore the pro/cons of investing vs. paying off the mortgage. But most people rarely payoff the mortgage; therefore, they should invest instead.
If you pick investing vs. mortgage, by all means open a brokerage account for after-tax investing. If your income allows for Roth IRA contribution, please invest in it before funding other brokerage accounts. If you still have money left over, open a brokerage account with low expense ratio. Health Savings Accounts (HSA) is a great way to invest for your future health care needs.
If you do your math right, you should have enough money left to pay for living expenses. We always advocate for living below your means. You should have a reasonable living space, drive an economical car, shop wisely for your groceries and avoid hedonic adaptions and instant gratification.
Here at Hired Dollar, we prefer controlling large expenses instead of utilizing our precious time maintaining a budget. If you want to get ahead financially, control large expenses such as housing, transportation and food. Budgeting is great especially when you are getting started financially; but after a while, most of the expenses becomes regular and expected. Since we invest before we spend, we do not see the need for a budget.
You should also have fun in life. Leave some money on the table for your hobbies, vacations, and celebrations. If you have kids, do not deny them childhood to save money. Don’t spoil them either, it is better to be a parent who can “afford anything” but does not buy “everything” the kids desire.
Lastly, if you’re lucky to be in a position to help others, then please do. Donate to your favorite charity, tithe or volunteer. Use your resources to make someone else’s life better.
By having this financial roadmap, you can effectively assign every dollar a job and have some freedom of mind.
The take away: money should be viewed as a tool. Every tool has a job. Make sure you give your money a job to do.
Thank you for reading.
