Do This EVERY Time You Get Paid (Updated 2026 Paycheck Routine)

Here's exactly where I would put my money every time I get paid and why the order matters now more than ever, since everything seems to cost 30% more than it did three years ago. I've updated this video to reflect the challenges of 2026 and beyond, which include inflation numbers, lower high yield interest rates, as well as increased contribution amounts for retirement accounts. The flow chart in this video then should help serve as a guideline in how you should be thinking about the flow of your money after you receive a paycheck. And you can always refer back to this video at any time in the future. So let's not waste any time. After you get paid, the first place that your money should go is towards paying off any minimum payments on debt, such as credit card payments, student loans, auto loans, or even BNPL or buy now, pay later debt. Think of this as your treading water step. You actually need to make these payments because if you're late or even just miss one of these payments, your credit score will suffer. And if you have bad credit, it's going to make qualifying for things such as renting an apartment or getting a better interest rate on a mortgage, very difficult. Credit scores are calculated through these five factors, and you can see the top two here. The first is simply payment history. So as long as you keep making on-time payments, your credit score should be in good standing. And if you keep the amount of debt that you borrow to a reasonable level, your credit score should take care of itself because these two factors alone make up 65% of what your score is comprised of. Now, in this step, you don't really need a plan just yet to take care of all of your debt. You just really want to make sure your automatic payments are set up so that you don't miss any payments. We're going to talk more about some debt strategies in step number five, but for now, let's move on to the next step, which is actually a bonus step today. So step 1.5. And I'm putting this here early because it's going to make everything else in this video easier. Step 1.5 is all about automating everything, because if you're able to set up automatic transfers for everything we're about to cover in this video, it will be the best financial decision that you can make because you are removing yourself from the equation entirely. And I mean that in a good way, because it's all psychology and the psychology here is really simple. You can't spend any money that you don't even have. If the money moves automatically before it even hits your checking account, you're not relying on discipline or remembering to do it every month. It just kind of happens and it can just flow into the following steps seamlessly. Most banks and brokerages let you schedule recurring transfers. So take 15 minutes after this video, review all the steps today and then automate your money into their respective buckets. All right. Step number two today is to put money aside for necessities, AKA your monthly operating budget. I like to either keep this money in my main checking account or even a separate account that I labeled just for necessities. You want to make sure you're accounting for the money you need to live on a daily basis. So things like your rent or mortgage, food, healthcare, utilities, transportation, etc. So as you can see in this sample budgeting spreadsheet, you can see that this person has a rent of $1,750, utilities of $300, a car payment, insurance payment, groceries, cell phone, and internet bill totaling about $2,910 per month. That means if I were allocating my pay for step number two, in this case, I would always want to have at least $2,910 in my account at all times and upwards of even $3,300 just for a little bit of a buffer, because I think that's always nice to have. Note that this money for your monthly operating budget is separate from what's called an emergency fund. So an emergency fund is for when accidents or unexpected life events happen, which we will talk about in step number three, but just know that this monthly operating budget that you have is different for now. All right. So if you notice, this budgeting worksheet is also categorized in terms of needs, wants, and savings. I think it's pretty important to categorize your expenses and differentiate between what a need expenses and what a want expenses. Ideally, the split between the three is going to be 50, 30, 20. So 50% to your needs, 30% to your wants, and 20% to your savings or investments. If you live in a high cost of living area, the needs percentage might be closer to 60%. And if you're in a lower cost of living place, it could be 40%. Either way, it's really important to run your own numbers. Make sure you know how much you're getting paid and how much your necessities are costing you and establishing what that looks like every month or every paycheck. Okay. So once you have that, we'll move on to step number three, and that is establishing your emergency fund in 2026. If you've watched some of my videos before, you should have a good idea of what this is, but as its name implies, it's an account that you do not touch any of the money unless it's for an emergency. Now for 2026, most financial advisors and experts used to recommend three months of living expenses, but these days with so much more economic volatility, I think having four to six months worth of your expenses as your target is a good goal to have. So if your monthly needs cost you about $2,500 a month, then your emergency fund target should be somewhere between 10 and $15,000. I know that sounds like a lot. And if it is, perhaps you set a intermediate goal first. So maybe get your first $5,000 and then work your way up after that. This is still the thing that I would probably build up first before I start to invest and allocate my money elsewhere. And honestly, I think it's even more important now than it was a few years ago. In terms of where to keep your emergency funds, you want it in a high yield savings account that generates some interest while staying completely liquid, which means that you can access this money whenever you need it. Now it's even harder these days is that back in 2023 and 2024, high yield accounts were paying between four to 5% per year in terms of interest. But these days you're looking at between three and 3.5%, depending on the bank. It's still way better than a yes, which averages around 0.11%. But as interest rates slowly drop over the next few years, we might have to look for other great places for yield. For this year though, we should still be fine in a high yield savings account. And I will leave some links down below to my favorite ones in the description down there. Once you have those first three or three and a half steps covered, now it's the best time to start investing for your future. So this is step number four. And the best place is with your retirement account or pension plan with your employer. About two thirds of people who watch this channel are in the US where we have 401k plans. But if you're in the UK, you have something called a workplace pension. Australia has a superannuation and Canada has RRSPs. Whatever country you're in, the principles here still apply. And I think a good goal here is to contribute at least 10 to 15% of your paycheck towards retirement. In 2026, the 401k limit is now $24,500 per year if you're under the age of 50 or 32,500 if you're 50 and older. If your employer offers an employer match, you need to contribute at least enough to get the full match. And I think that you should always do that because it's free money from your employer to match your own contributions. Beyond the match, if you want to save more of your salary into your 401k, that's definitely up to you. But there are some other things that you can do before that, in my opinion. Just remember that any money that you do save into your 401k should not be withdrawn until retirement age. This is actually a problem for some people. They might run into some liquidity challenges throughout their earlier years in case they want to use that money for something. It's kind of tied up until you hit retirement age, which is usually around 59 and a half. But still, I still think a 401k is quite worth it. So let's say you contribute 10% of a $75,000 salary, that's $7,500 per year. If you invest that consistently for 40 years in the S&P 500, averaging 8% annually, you're still looking at about $2.1 million by retirement, which is why I think it's so powerful to start early when you are young, in your 20s perhaps, and you can stay consistent with it. This is also why step 1.5 is so powerful, because if you can automate this, it's even better. And I think it's one of the best places that your money can go. All right, let's move on to step number five, which has to do with paying off any remaining high interest rate debt. High interest rate debt, in my opinion, would be anything over 15%. And there are two main methods that people use to pay off debt. The first is the avalanche method, and the other is the snowball method. Now, both have their pros and cons. The avalanche method prioritizes the highest interest rate debt to be paid off first and is the most financially optimal, but it can be the most psychologically difficult. So let's say you have these three sources of debt on the screen right here. You have car payments, credit card payments, and student loans, and you owe $3,000 on each of these. The interest rate is as follows, 7% interest rate on the car, 25% on your credit card, and 4% on your student loans. Do you know which one you should pay off first? If you said the credit card balance first, then you would be correct because that is costing you the most amount of money every single month because of its high APR. And then you would do the car payment, and then finally the student loans. Now, in this particular example, I made the balance the exact same on all of these, which is usually not going to be the case in reality. In reality, you're going to probably owe a lot more on, say, your student loans versus your credit card payments. It's important to note that with the avalanche method, you're just going by interest rate, and that's all you should focus on. The other method called the snowball method is where you knock off debt in order of the smallest to largest balance. The goal here is that you will gain momentum by paying off these smaller debts, and that will psychologically feel a lot better if you're able to maintain momentum and then kill all that debt sequentially. So maybe try both of the methods out and see which one you like more. It really just depends on who you are and what you actually gravitate towards. Now, one thing I want to discuss is lower interest rate debt and investing at the same time. So oftentimes people will ask me if they can still invest if they have debt. And the answer is yes, as long as the debt is lower than an interest rate of four to six percent. For example, if you carry student loans at a four percent interest rate, it may make financial sense to actually invest while you still hold on to this student loan debt. The rationale being that you can make around eight to ten percent in the stock market. So investing is technically worth more of your money. However, if you want the psychological win, every dollar that you pay off with a student loan debt of, say, four percent or five percent, that's a guaranteed interest rate that you are getting on your money. It's a guaranteed return of four or five percent. So you might want to pay off that debt for peace of mind. I personally don't like having debt, but I do know people that like to carry debt and still invest. So even though my choices might not be the financially best move for me psychologically, it is the best. It really depends on you. Don't listen to what people on Reddit or the Internet have to say. It's really a personal choice. So make sure you choose what's best for you. Step number six is to invest beyond your 401k. So after you've done steps one through five, here's my personal investing priority. First, I would do my 401k match. Then I would max out my Roth IRA and then I would top up my 401k or just simply invest in a taxable brokerage account investing in stocks and ETFs. The main advantage of having a Roth IRA is that your earnings and profits are growing tax free. That means when you retire and you withdraw all the earnings on this account, you won't pay any taxes on it. Now, if you're under the age of 50 in 2026, you can contribute seventy five hundred dollars a year into it. And if you're over the age of 50, you can contribute eighty six hundred dollars a year as a catch up mechanism. The catch is with the Roth IRA is that you're contributing to it with after tax dollars. So you've already paid taxes on this money going in, but you'll never pay taxes on the growth coming out after you've maxed out your Roth IRA and you want to invest even more. I would say open up a normal taxable brokerage account or just simply max out your 401k. Now, with a taxable brokerage account, this is just regular investing. There's no special tax treatment, no contribution limits, and you can access your money anytime without penalties. The difference is, though, is that it's called a taxable brokerage account for a reason, because if you make ten thousand dollars in gains, for example, and you sell some of it, you will actually owe capital gains on that profit. So let's say you buy Apple stock and you sell it within the same year. You are going to be taxed at your ordinary income tax rate, which could be upwards of 37 percent, assuming you made profit. Now, if you hold any security for longer than a year and then you sell it for a profit after a year, then it will qualify for long term capital gains and you will pay a smaller percentage in tax on the gain, anywhere between zero and 20 percent. So strategically, here's what makes sense to me. So in a Roth IRA, I tend to go for higher growth ETFs and stocks that can maximize my upside. That's because the earnings in this account are tax free. So I want to maximize the growth that's in that account. In a taxable brokerage account, it makes more sense to stick with simple index funds like the S&P 500 or maybe even QQQ or SEHD. They're tax efficient. They have low fees and they are reliable. Now, the real kicker here, though, is just investing consistently. If you're able to stay consistent and invest regularly, even if it's not like ninety nine point nine nine nine nine percent optimized or anything like that, you will still come out way ahead of someone who doesn't invest at all. All right. Lastly, let's get into step number seven where your money should go. And that, I believe, is towards multiple income streams. If you made it this far in the flow chart, that's amazing. You're already ahead of most people. You've covered your bases. You're investing regularly. And now it's more about diversifying how you make your money. According to Inc.com, 65 percent of self-made millionaires had at least three streams of income. So in 2026, if you're still relying on just one single income source, I think it's really risky. Not only have we seen layoffs in tech, but A.I. is reshaping entire industries and economic uncertainty is basically around every corner. So I think that diversification can really help against this, not just in your investments, but also in your income as well as your skills. You don't have to do 80 hours a week of work in order to do this. But if you can just dedicate just one to three to five hours per week to build something on the side, that's an extra 100, 200, 500, maybe even thousand dollars per month that could help you change your financial path. So some ideas here, I'm going to put them on the screen here. You could do freelancing or consulting in your area of expertise. So let's say you're really good at copywriting at your main job. Maybe you do it on the side or help businesses with it. Number two, you could get dividend income through dividend paying stocks. Number three, you could build a content channel like YouTube, TikTok, Instagram, a sub stack, etc. Number four, you can start an online business or an Etsy store. So I know some people that run an Etsy shop. They sell jewelry and little charm bracelets and they make quite a good side income off of that. Number five, you could teach or coach people in what you know. So if you're really good at running, climbing, tutoring, something like that, you could teach others how to do it. Number six, you can invest in real estate or REITs, real estate investment trusts. So these are all different types of options that you could add an additional income stream to your life. The beautiful part is that any money that you make from these additional income streams can be immediately funneled back into steps one through six. That means you can increase your emergency funds. You could increase your Roth IRA contributions. You can have more money in your taxable account. It's going to all compound for you. All right. So that is what I would do in 2026 if I got paid and the exact order in which I would do it. Make sure to subscribe to this channel if you got any value out of this video. And if you're looking for a video on how to invest your money in 2026, you want to check out my beginner's investing guide, which will be linked right here. I hope that you really enjoy that video. So I'll see you guys in that one or a future video on the channel. All right. Thank you for being here. Peace.