Do This EVERY Time You Get Paid (Paycheck Routine)

Short Summary:

This video outlines a "paycheck routine" designed to help viewers manage their finances, save money, and build wealth. The routine involves separating wants from needs, setting up a high-interest savings account, paying off high-interest debt, investing in a tax-advantaged account, and allocating a small portion to high-risk, high-reward ventures like side hustles and cryptocurrencies. The video emphasizes the importance of consistency and highlights the potential for long-term financial growth through disciplined saving and investing. Specific examples include using a Stocks and Shares ISA in the UK or a Roth IRA in the US for tax-free investing, and utilizing platforms like Trading 212 for automated investing.

Detailed Summary:

1. Separate Wants from Needs:

The first step is to identify and categorize spending habits.
The speaker recommends reviewing bank statements for the past six months and separating expenses into "wants" and "needs."
"Needs" are essential expenses like rent, bills, and utilities, while "wants" include discretionary spending like entertainment, dining out, and subscriptions.
The goal is to minimize "wants" and ensure "needs" constitute less than 25% of monthly income.
The speaker suggests exploring ways to reduce "needs" by negotiating bills, finding cheaper housing options, or increasing income through promotions or side hustles.

2. High-Interest Savings Account:

The second step involves setting up a high-interest savings account with a separate bank to avoid temptation.
The speaker recommends allocating 20% of the paycheck to this account, emphasizing its role as a safety net for emergencies.
The speaker stresses the importance of having an emergency fund, suggesting a target of 3-6 months of essential expenses.

3. Pay Down High-Interest Debt:

The third step focuses on eliminating high-interest debt, which is considered a guaranteed return on investment.
The speaker explains that paying off high-interest debt is more beneficial than investing in stocks with potentially lower returns.
Two methods for debt repayment are discussed: the Avalanche method (paying off the highest interest debt first) and the Snowball method (paying off the smallest debt first).
The speaker advocates for the Avalanche method as it minimizes overall interest payments.

4. Tax-Advantaged Investing Account:

The fourth step involves investing in a tax-advantaged account like a Stocks and Shares ISA (UK) or Roth IRA (US).
The speaker recommends allocating 35-40% of the remaining paycheck to this account and investing in low-cost index funds like the S&P 500.
The speaker highlights the potential for tax-free returns on investments and encourages setting up automatic investing for consistency.
The speaker uses the example of his son's experiment with investing £5 per day in the S&P 500, demonstrating the power of consistent, long-term investing.

5. High-Risk, High-Reward Plays:

The fifth and final step involves allocating a small portion (5-10%) of the paycheck to high-risk, high-reward ventures.
The speaker suggests exploring side hustles or starting a business to potentially accelerate wealth accumulation.
The speaker also mentions investing a small portion (5%) in cryptocurrencies like Bitcoin and Ethereum, acknowledging the high risk but potential for significant returns.

Notable Quotes:

"Your earning potential is always higher than your saving potential."
"It's just shocking to me as of May 2023, one in five Americans have no emergency fund at all."
"Why bother investing in stocks for a possible 8 to 10% return when you can have a guaranteed 25% return by paying off the debt that's constantly eating into your wealth every single day?"
"I honestly sit in the middle as I've traveled down both of these paths."
"When you have less money to play with, especially in the early days of starting a side hustle, you actually become more creative with how you use it."