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How to Use the Pay Yourself First Budget Model (With Examples)



guide to the pay yourself first budget

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If you’re interested in taking control of your money, an excellent starting place is to look at your income. You can divide your paycheck every month to prioritize your goals. This is a method of money management called “paying yourself first” (or PYF). It’s used by thousands of Americans to pay down debt, save money, and reach their financial goals.

Paying yourself first is a budgeting strategy that helps ensure you reach your financial goals by putting money aside from each paycheck and using what’s left for your daily life and leisure expenses. This method ensures that you meet your financial goals and carve out some fun money — an essential part of making a budget that you can stick to.

That said, there’s no one-size-fits-all budgeting method that works for everyone, and that’s true of this one. Business owners with variable incomes, for example, might find it challenging to put money into savings during lower earning months and might not think of upping their savings during higher earning months.

If you’re interested in this tried and true method to divide your paycheck, keep reading to find out everything you need to know about paying yourself first.

The Short Version

  • Paying yourself first is a budgeting method that focuses on prioritizing savings goals through automation.
  • There are several ways to pay yourself first, including splitting your money 80/20 or 50/30/20.
  • Setting up a pay-yourself-first budget includes automating your paycheck to be deposited into your online brokerage or savings accounts.

How the Pay Yourself First Budget Works

The PYF budget involves dividing up your paycheck as soon as you receive it and sending a portion of that money toward your financial goals (like saving for a down payment or paying off debt) and then divvying up the rest for needs and wants. There are two primary ways to divide your paycheck using the PYF method.

80/20 Budget

Budgeters who use the 80/20 rule save 20% of their paycheck for financial goals like retirement, debt repayment, or building an emergency fund and the remaining 80% of their paycheck for expenses like transportation, rent, groceries, and entertainment.

The 80/20 method of paying yourself first is a flexible and ideal strategy for first-time budgeters or those who want to save but also hope to devote large portions of their income to paying off debt.

50/30/20 Budget

While the 80/20 method of budgeting ensures you save at least 20% of your paycheck, you can divide your paycheck further using the 50/30/20 method to make sure your budget is even more balanced.

Using this method, you’ll divide your paycheck using the following percentages:

  • 50% on needs (like paying your mortgage and groceries)
  • 30% on wants (like travel and eating out)
  • 20% on savings (like emergency or retirement savings)

The 50/30/20 method is ideal for busy households because it prevents you from spending too much on your “wants” and ensures you have enough money allocated toward your “needs.”

Alternatively, the 50/30/20 rule can help you gain insight on and avoid future financial obligations where you might be spending too much on your “needs.” For example, by simply running the numbers, you may decide against taking on a mortgage that is too large, or a car payment that you can’t afford.

The 50/30/20 method of dividing your paycheck is a good choice for young families who may incur debt like car payments and mortgages and want to ensure they aren’t overspending on needs.

Related>>How Can Emotions Affect Your Investing Decisions?

Benefits of Paying Yourself First

No matter how you slice it, there are numerous benefits to the PYF method of budgeting. First, an issue that most investors face is making sure they’re investing consistently. When you pay yourself first, you guarantee that you will build a nest egg over time.

Paying yourself first will get your money where it needs to go as soon as you get your paycheck, instead of waiting to see what is left over at the end of each month. That way, you are guaranteed to save money each month — and over time, that money will snowball into a significant amount.

Second, paying yourself first is easy. By setting up automatic deposits to your investment brokerage and savings accounts, paying yourself first takes no effort on a month-to-month basis. As long as your paycheck is deposited at predictable intervals, you can set up an automatic withdrawal from one account into your savings or investment accounts.

Finally, this method is adaptable. Once you master it, you can use the strategy to suit whatever your next milestones happen to be. Whether it’s paying off debt, early retirement, or buying your dream home, you’ll make sure you get it done by paying yourself first.

How to Build a Pay Yourself First Budget

While the theory of the PYF budget is sound, and thousands of people have used it to achieve their financial goals, it may be hard to see how you can incorporate it into your own life. How do you set about using this method to budget your money? Here’s precisely how it works.

First, decide whether you want to use the 80/20 method or the 50/30/20 method. Remember:

80/20: 80% of your paycheck goes towards needs and wants, and 20% goes towards savings.

50/30/20: 50% of your paycheck goes towards your needs, 30% to your wants, and 20% to savings.

What an 80/20 Budget Looks Like

Using the 80/20 method starts with designating 20% of your income towards financial goals. You can divide up that 20% however you’d like. For example, you might allocate 15% of your paycheck toward retirement savings and 5% toward building your emergency fund.

That means if you receive a bimonthly paycheck of $2,500, you can expect to allocate:

  • $2,500 x 15% = $375 for retirement savings
  • $2,500 x 5% = $125 toward emergency fund

Once you have that money allocated, you can comfortably spend the remaining 80% (in this case, $2,000) on your wants and needs, at your discretion.

To put this budget into practice, you’ll need to set up an automatic contribution to both your retirement savings and your emergency fund. That way when your paycheck hits your account, your savings are removed automatically from your checking account. The rest is yours to spend.

What a 50/30/20 Budget Looks Like

Choosing the 50/30/20 method for dividing your paycheck is slightly more involved but still very straightforward.

Using the example above, if you receive a bimonthly paycheck of $2,500, your allocations will be as follows:

  • Savings: $2,500 x 20% = $500
  • Needs: $2,500 x 50% = $1,250
  • Wants: $2,500 x 30% = $750

Again, you can save on autopilot by setting up automatic transfers from your checking to your savings or brokerage accounts. To ensure your needs and wants are in balance, you’ll need to tally up your spending and determine which are needs and wants.

Needs include:

  • Car payments
  • Car insurance and maintenance
  • Gasoline and transit passes
  • Cell phone bills
  • Rent and mortgage payments
  • Groceries
  • Insurance
  • Utilities

Wants include:

  • Entertainment
  • Subscription streaming services
  • Gym memberships
  • Shopping

If you add up your expenses and your spending and find that your wants and needs aren’t in balance with the 30/50 division suggested, you can alter your budget to bring it into balance.

The Bottom Line

A prosperous financial future isn’t about picking the right stocks or riding a cryptocurrency all the way to the moon. While these aspects of financial management may help you grow your net worth, it’s way more important to have solid fundamentals.

You can’t get much more basic than establishing a solid savings routine by paying yourself first. Paying yourself first or dividing your paycheck lets you start saving in a pain-free way. There are plenty of other ways to budget, from zero-based budgeting to the envelope method. Still, this is a super-flexible strategy that prioritizes your financial goals, while giving you lots of breathing room.

Now that’s what we call a win-win.

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Sushiswap developers propose to divert 100% of fees generated to Sushi’s multisig



Sushiswap developers propose to divert 100% of fees generated to Sushi’s multisig

  • Sushiswap developers have submitted a new governance proposal to the community.

  • The proposal seeks to divert 100% of fees generated on the platform to Sushi’s multisig.

  • The funds would be used for Sushi’s multisig for a year or until new tokenomics are implemented.

Sushiswap developers want to divert trading fees

Developers of the decentralised finance (DeFi) protocol, Sushiswap, have submitted a new proposal to the community. According to the proposal, 100% of the fees generated on the platform would be diverted to Sushi’s multisig for one year or until new tokenomics are implemented.

This latest cryptocurrency news comes as Sushiswap is currently facing a significant deficit in its treasury. The deficit threatens the protocol’s long-term operational viability. 

In his proposal, the Head Chef, Jared Gray, said;

“After reviewing expenditures, it’s clear that a significant deficit in the Treasury threatens Sushi’s operational viability, requiring an immediate remedy. In my original proposal, Sushi operated with an annual runway of 9M USD. However, after my detailed review, we reduced that requirement to 5M USD. We made the reduction possible by renegotiating infrastructure contracts, scaling back underperforming or superfluous dependencies, and instituting a budget freeze on non-critical personnel and infrastructure.”

Despite reducing the project’s annual runway requirement from $9 million to $5 million, the treasury still provides for only about 18 months of runway.

The developers are now proposing to set up Kanpai, a fee-diversion protocol. The proposal, if accepted, will lead to 100% of fees diverted to the Treasury multisig for one year or until the project’s new token distribution and reward schemes become active. 

Sushiswap’s fee-diversion solution is temporary

The developers pointed out that the proposal is a temporary solution to a long-term problem. The proposal was put in place because new tokenomics will take time to implement

The Head Chef said;

“Kanpai is a temporary solution to a long-term problem, and a new tokenomics proposal is on the horizon, which will help address the long-term value proposition of Sushi for stakeholders. Sushi must implement a holistic token model that allows the rebuilding of the Treasury and delivers value for all stakeholders while reducing the fiscal liability carried solely by the protocol.”

In addition to Kanpai, the Sushi team said it increased its funding by securing several multi-million dollar partner deals. 

However, the developers added that relying on business development deals is only part of a successful business model to secure Sushi’s future. In October, asset management firm GoldenTree invested $5.2 million in Sushiswap.

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Europe’s McGuinness pushes for global rules after FTX collapse



Europe's McGuinness pushes for global rules after FTX collapse

Mairead McGuinness, financial services commissioner for the European Union spoke to CNBC in Brussels.

Bloomberg | Bloomberg | Getty Images

BRUSSELS — Some market players are purposely avoiding regulation in the crypto space, the EU’s top regulator told CNBC as she called for a global approach to protect retail investors.

The European Union agreed in June on the Markets in Crypto-Assets (MiCA) regulation. This is meant to reduce risks for consumers buying crypto assets. In essence, the rules mean providers would become liable if they lose investors’ crypto-assets, but the regulation is only due to start 12 months from now.

“It will not come into effect for a year, but I think it’s already having an effect,” Mairead McGuinness, European commissioner for financial services, told CNBC Tuesday.

She said that firms in the crypto industry that want to be part of the regulated system — and therefore have the seal of approval from a regulatory authority — are “already acting in a way that our legislation is pointing.”

However, she added that some crypto players are choosing to, and are fundamentally against, stricter rules.

“Some of those who were involved in crypto, from the very outset, were doing it because they didn’t want to be part of the regulated, managed system. They want it to be separate from and in parallel to it. That’s a very dangerous path,” she said.

Recent crises in the crypto world have clearly exposed the risks for consumers. The recent collapse of FTX, an exchange once valued at more than $30 billion, and the crash of supposed “stablecoin” terraUSD both highlighted the risks associated with these assets.

U.S. interest

The European Union has been stepping up rules in this space and has pushed for a global approach. In meetings last month, McGuinness discussed crypto regulation with her U.S. counterparts.

“What I found in the U.S. is huge interest in what we were doing here, and the markets and crypto assets legislation. And I believe there will be developments there,” she said.

In the wake of the downfall of FTX, some U.S. policymakers urged the Treasury to do more to tackle the risks for investors. The U.S. Treasury was not immediately available for comment when contacted by CNBC.

In the U.K., officials are reportedly working on a new plan to regulate crypto as well.

“We have seen events, let me put it like that, in this crypto space. Which maybe is a wake-up call for those who thought that investments would only increase in value,” McGuinness said.

She added that crypto is like climate change, in that it needed a global approach.

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New crypto wallet designed by iPod creator Tony Fadell



New crypto wallet designed by iPod creator Tony Fadell

The creator of the iPod, Tony Fadell, designed a new hardware wallet for people to store their cryptocurrency.

The product, created by French crypto asset security firm Ledger, launched at the company’s annual Ledger Op3n event Tuesday. Its launch comes at a time when trust in centralized crypto platforms is fading as a result of the collapse of Sam Bankman-Fried’s FTX.

It’s called Ledger Stax and resembles a small smartphone or credit card reader. Measuring 85 millimeters long and 54 millimeters wide, it’s roughly the same size as a credit card. It is also about 45 grams, weighing less than an iPhone. Users can deposit or exchange a range of tokens, including bitcoin, ether, cardano, solana and nonfungible tokens, or NFTs.

The Ledger Stax sports a black-and-white E-ink display, similar to that of Amazon’s Kindle e-readers. It also includes magnets, so that multiple devices can be stacked on top of each other, like a pile of books or cash — hence the name Stax. Users can connect it to their laptop through a USB cable or their phone via Bluetooth.

“Many Ledger owners have multiple devices, some store their NFTs, some store different crypto, some have multiple because they have different clients that they store for,” Fadell told CNBC in an interview.

The display also has a spine that curves around the edge, “so you can see what’s on each one, just like an old CD or cassette tape or book,” he said.

The iPod for crypto?

Initially, Fadell turned down working with the Ledger team on Stax. “This was not something I wanted to do,” he said. “When they first approached me I’m like, ‘I don’t want to do it. No thank you.’ I was interested in crypto, I had crypto at the time but I’ve basically got a lot of other things to do.”

The Ledger Stax is the latest hardware crypto wallet from French startup Ledger. It’s roughly the same size as a credit card and sports an E-ink display.

What is DeFi, and could it upend finance as we know it?

Ian Rogers, Ledger’s chief experience officer and a former executive at Apple and LVMH, said he’s confident about the mass market potential.

“There’s no question about the need for security and there’s no question that we lead increasingly online lives,” he told CNBC. “Instagram, Nike, Starbucks, Amazon — many companies are finding real life use cases for digital assets. And so I think that we will grow with that.”

Not your keys, not your crypto

After the recent collapse of FTX into insolvency, crypto holders have sought alternative means of storing their digital assets. One is via cold storage, where a user’s private key — the code they need to access their account — is kept on a device that’s not connected to the internet.

Since these wallets are offline, they’re less susceptible to hacks or failures. Ledger says that, to date, none of its devices have been hacked.

Ledger has seen a boost in sales as a result of fears around the contagion from the FTX collapse. Last week, BlockFi, a crypto lender, entered bankruptcy after revealing Alameda Research, Bankman-Fried’s trading firm, defaulted on $680 million worth of loans from the company.

November “will be our all-time high biggest month ever,” Pascal Gauthier, Ledger’s CEO, told CNBC. “All the news that you’ve seen since the beginning of the year, from Celsius all the way to FTX, has really pushed a lot of users towards self custody.”

Ledger has sold more than 5 million devices to date.

However, a sharp downturn in digital asset prices could spell trouble for the company with retail investors becoming more wary. Only 21% of Americans feel comfortable investing in cryptocurrency, according to Bankrate’s September survey. That’s down from 35% in 2021.

The Ledger Stax will compete with a slew of consumer gadgets this holiday shopping season, including Apple’s new iPhone 14, at a time when budgets are being constrained by rising inflation.

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