5 Essential Steps to Take with Your Paycheck Before It Hits Your Bank Account

Before that paycheck even hits your bank account, here are the five things that you need to do with it. I'm Tyler, a former financial advisor and portfolio manager, and I create financial content for free to help you make informed financial decisions.

1. High-Yield Savings Account

Put 20% of it directly into a high-yield savings account. This account is for my one to five year goals and allows my money to work for me, earning up to 50 times the national average on savings accounts. You can open one today through Ally, SoFi, or UFB Direct. These accounts are both FDIC insured and highly accessible in case of an emergency.

2. Taxable Brokerage Account

Put 10% of it directly into a taxable brokerage account. This account is for my five to 20 year goals. You can open one through Fidelity, Vanguard, or Schwab and invest the money in a no-cost index fund like Fidelity's FNILX. As long as you hold onto those investments for over one year, you will receive a tax advantage and pay less on those future capital gains.

3. Retirement Accounts

Put 10% of that paycheck directly into a 401(k), Roth IRA, or Roth 401(k). This account is for my 20 to 30 year goals. You can invest that money into a relatively aggressive fund like Invesco's QQQ or Vanguard's VUG.

4. Health Savings Account (HSA)

Put 5% directly into a health savings account if you have access to one. This is the only triple advantage tax account in the world. Contributions are tax-deductible, investments grow tax-deferred, and withdrawals are tax-free as long as they're spent on qualifying medical expenses. You don’t need to do this through your employer; you just need a high-deductible health plan, no other health insurance, and a minimum deductible of $1,600 for individuals or $3,200 for families.

5. Budget for Immediate Bills

The remaining 55% of your paycheck is for your immediate bills and should be put in a checking account. If you truly cannot afford your basic necessities on 55% of your paycheck, start by lowering your contributions to the taxable brokerage account, followed by the high-yield savings account, then the 401(k) or Roth IRA, and finally the health savings account.

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