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Do you know what you should be doing with your paycheck? While answering this question can be tricky because every person’s financial situation is unique, there are a few high-level approaches you can take starting right now.

GOBankingRates spoke with Amy Irvine, CFP at Rooted Planning Group, to learn more about money savvy moves you’ll want to make, and mishaps to avoid, every payday.

Here’s how to make the most of your paycheck.

Take Advantage of Tax-Deductible Opportunities

Irvine recommends trying to take advantage of every tax-deductible opportunity you can through payroll deduction.

Some of these may depend on your family situation. A few examples where you can get started include the following:

  • Health savings account (HSA). You can also explore a flexible spending account (FSA) depending on your family situation and company-offered benefits.
  • Special purpose FSA. These are also referred to as a limited purpose FSA for any dental and vision expenses.
  • Dependent care FSA. You can use these for kids or parents you have qualifying expenses for.
  • 401(k) plan. Irvine said this can be Roth or traditional, depending on your situation.

Pay for Life and Disability Insurance

Those who want to make the most of their paycheck should consider paying for life and disability insurance.

“If those plans are portable in any way, the cost may be lower for the coverage you need,” Irvine said.

Consider Using the 50/30/20 Method

In addition to the savings already mentioned, Irvine recommends using the 50/30/20 method with your paycheck.

This means 50% of your take-home pay goes to needs like housing, food, transportation and utility payments. Put 30% aside for wants, like dining out and entertainment, and put the final 20% towards savings and debt.

Pay Down Debt

What if you have debt, like student loans or credit cards? Irvine recommends creating a debt snowball or debt avalanche reduction plan to quickly pay down debt.

As a refresher, debt snowball pays off debt with the smallest balances in full first before “snowballing” to the debt with the next highest balance. Debt avalanche targets debt with the highest interest rate while making minimum payments on any other debts. Once the debt with the highest interest rate is paid off, you can work your way down by paying off debts with the highest interest rates until you reach the debt with the lowest rate — and pay it in full.

Don’t Over-Withhold Your Income Taxes

Have you ever over-withheld your income taxes as a forced savings plan? 

Irvine said to consider lowering your withholding and transferring the difference to a high-yield savings account. Doing so means you’ll be able to have your money work for you instead of giving it as an interest-free loan.

At the same time, Irvine does not recommend under-withholding, either. “It’s important to make sure that the proper withholdings are being charged to you, including the proper income tax withholdings.”

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